The lira weakened for a second day after the Valencia region in Spain said it will tap the country’s financing facility, spurring concern Europe’s debt crisis is worsening and hurting demand for riskier assets.
The Turkish currency depreciated 0.4 percent to 1.8092 per dollar, paring its weekly gain to 0.1 percent. Yields on two- year benchmark debt rose two basis points, or 0.02 percentage point, to 7.77 percent after falling in the four previous days to their lowest level since September.
Valencia may face default if it doesn’t receive more financial aid from the central government, El Mundo reported today, citing the president of the region, Alberto Fabra. Turkey sends about 40 percent of its exports to Europe. The Turkish central bank omitted a reference to “extra tightening” in a statement it released yesterday after leaving interest rates unchanged in its monetary policy meeting.
“Markets switched suddenly into risk off mode on the back of the news that Valencia is seeking aid from the Spanish government to repay its debt,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments.
The central bank held its benchmark one-week rate at 5.75 percent and the overnight lending rate at 11.5 percent at its policy meeting. It will lend a cumulative minimum of 3 billion liras ($1.65 billion) in its one-week repo auction at its lowest funding rate between today and Aug. 2, compared with 6 billion liras in the previous two-week period, the Ankara-based bank said today.
Governor Erdem Basci executes his monetary policy through a rates corridor, adjusting borrowing costs between 5.75 percent and 11.5 percent daily to control credit growth and the current- account deficit while reining in inflation.
The proportion of lira reserves lenders keep with the central bank in foreign exchange was increased by 5 percentage points to 55 percent yesterday. The change, effective from Aug. 3, may add $2.9 billion to the bank’s reserves and brings an additional 2.8 billion liras ($1.6 billion) to the market, a statement on the bank’s website said.
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