Bloomberg News

Lira Gains for Second Day as Central Bank Extends Tighter Policy

May 25, 2012

The lira strengthened for a second day after the Turkish central bank continued to refrain from lending at its lowest policy rate to slow the currency’s depreciation.

The lira gained 0.3 percent to 1.8427 per dollar at 5:30 p.m. in Istanbul, paring this week’s decline to 0.4 percent in the third week of losses.

While the lira weakened 4.6 percent this month against the dollar, it has fared better than all the other currencies in the Europe, Middle East and Africa region after the Israeli shekel and the Icelandic koruna. Central bank Governor Erdem Basci has forecast inflation will fall to 6.5 percent by the end of this year from the current pace of 11.1 percent.

“The lira has been a good trade and the central bank’s stance is a factor in this,” Bulent Topbas, a fund manager at Strateji Menkul Degerler AS in Istanbul, said in e-mailed comments.

The central bank refrained from lending at its lowest 5.75 percent policy rate for a fifth day. It lent 6 billion liras ($3.24 billion) in its one-week repurchase auction at 10.8 percent today. The bank varies its policy rates daily between 5.75 percent and 11.5 percent within the so-called interest rate corridor to support the currency.

The yield on two-year benchmark debt gained 1 basis point, or 0.01 percentage point, to 9.53 percent, according to data compiled by Bloomberg. Yields increased two basis points this week, paring this year’s drop to 148 basis points.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

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


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