Turkish Lira Drops Fourth Day as Loose Policy Trumps Carry Trade

The lira weakened for a fourth day and depreciated to the lowest level in almost two weeks as the central bank continued to lend at its lower rate, reducing the appeal of carry trade.

The currency declined 0.6 percent at 1.7746 per dollar as of 10:03 a.m. in Istanbul, trimming its gains this year to 6.6 percent. Yields on the benchmark two-year debt increased six basis points, or 0.06 percentage point, to 9.28 percent. Carry trade refers to selling currencies with lower interest rates to buying those offering higher yields. The central bank offered to lend 4 billion liras ($2.3 billion) today at 5.75 percent.

Turkey’s central bank has been lending at its lowest 5.75 percent benchmark interest rate every day since Jan. 10, pushing the overnight repurchase agreement rates on the interbank market to 6.60 percent yesterday, the lowest since October. Yields on the two-year debt have fallen 173 basis points this year after soaring 390 basis points last year.

“The fall in short-term rates and the excess lira liquidity in the market reduces carry from lira long positions,” Eren Yardimci, an emerging-market currency trader at UBS AG in Zurich, said in e-mailed comments.

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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