Bloomberg News

Turkish Lira Falls 2nd Day on Bets of More Central Bank Funding

February 22, 2012

Feb. 22 (Bloomberg) -- The lira retreated for a second day, heading for the weakest level in almost a week, on bets the central bank will increase its funding after unexpectedly cutting the highest lending rates.

The lira depreciated 0.4 percent to 1.7584 per dollar at 5:06 a.m. in Istanbul, poised for the lowest close since Feb. 16. Yields on the two-year benchmark bonds were unchanged at 9 percent after falling as much as 12 basis points, according to the Turk Ekonomi Bankasi AS index.

The central bank reduced the maximum interest rate charged for overnight lending to 11.5 percent from 12.5 percent yesterday, saying it was taking into account monetary easing in other economies. It also reduced the repo rate for market making by a similar amount to 11 percent. The bank lent 5 billion liras today at 5.75 percent, its lowest benchmark lending rate.

The decision “indicates a loose monetary policy for the future and expectations have emerged that the central bank will raise the funding amount,” said Emre Balkeser, head of trading at Garanti Investment in Istanbul, said in e-mailed comments.

Governor Erdem Basci introduced the interest-rate corridor in October, allowing him to vary rates on a daily basis to manage money supply and credit growth. Since mid-January he has made more funding available at the lowest end of this band even as inflation at 10.6 percent was at a three-year high in January. Cheaper money supports the government in keeping the economy ticking amid a slowdown in Europe, Turkey’s main export destination.

The lira sank 18 percent last year in the worst performance worldwide and hit a record low of 1.9224 per dollar on Dec. 28. Yields soared 390 basis points last year in the biggest rise in three years as investors reduced positions in Turkey on account of its large current-account deficit.

--Editors: Ash Kumar, Peter Branton

To contact the reporter responsible for this story: Selcuk Gokoluk at sgokoluk@bloomberg.net To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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