The lira weakened for a sixth day, plunging to a record low, as the Turkish central bank’s dollar sales failed to stem the fallout from concern of reduced U.S monetary stimulus.
The currency depreciated 0.8 percent to 1.9543 at 5:54 p.m. in Istanbul, its lowest level since at least 1981. Yields on two-year debt dropped 26 basis points, or 0.26 percentage point, to 7.81 percent in their first decline in six days.
The central bank will hold a single dollar auction on days it provides funding at its policy rate of 4.5 percent and will sell at least $150 million. That compares with a sale of $350 million in multiple auctions on June 20, when the lira first hit the 1.95 per-dollar level. Federal Reserve Chairman Ben S. Bernanke said on June 19 the U.S. central bank may curtail its monthly asset purchases as soon as this year, cutting risk appetite for emerging-market debt and currencies.
“The chances are slim that the central bank’s $150 million sale can counter the lira selling pressure in the market at this stage,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank in Geneva, said in e-mailed comments. “It is strongly probable that the dollar will keep strengthening this week after the Fed meeting.”
Turkey’s borrowing costs have jumped and the lira weakened as anti-government protests broke out at the end of May. Premier Recep Tayyip Erdogan said at a party rally in the central Anatolian city of Kayseri on June 21 that the “main opposition will pay price for backing protest.” Turkish people will not bow to artists and writers who are “humiliating” them, he said.
The central bank lent 4.5 billion liras in its one-week repo auction at the 4.5 percent policy rate, the first such sale in four days, and 17 billion liras to market making banks at 6 percent today.
“The central bank’s foreign exchange sale and opening of weekly repo auction shows it will use an interest rate rise as the last resort,” Onder Turker, a fixed-income trader at Finansbank AS, said in e-mailed comments yesterday.
The Treasury sold a total 2.31 billion liras of five-year fixed-rate debt due in 2018 at 3 percentage points more than the yield on previous sale of similar-maturity debt May 13. It also issued 2.26 billion liras of inflation-linked securities at 2.95 percent average real rate, 201 basis points above the yield at the last auction of similar-maturity debt May 14.
Turkey seeks to raise 38.8 billion liras through August in domestic debt sales, including 13 billion liras this month, the document said. That compares with 17.6 billion liras in the same period last year.
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