Turkish Lira Drops Most in Two Weeks as Central Bank Cuts Rates

The lira depreciated the most in two weeks and yields closed near record lows after the Turkish central bank cut interest rates.

The currency lost the most among emerging-market peers after the central bank reduced its overnight borrowing and lending rates by 25 basis points each to 4.5 percent and 8.5 percent, respectively. Three of the six analysts surveyed by Bloomberg predicted the decision.

“The lira has weakened on the decision,” Annika Lindblad, an analyst at Nordea Markets in Helsinki, said in an e-mailed note. “The central bank will closely monitor the lira, being wary of too much appreciation pressure especially from speculative capital inflows.”

Turkey’s currency slid as much as 0.7 percent, its lowest level since Jan. 7 on a closing basis, before paring its retreat to 0.5 percent at 1.7759 a dollar by 5:21 p.m. in Istanbul. The drop in the lira today is the most since Feb. 4, according to data compiled by Bloomberg. Yields dropped 10 basis points, or 0.1 percentage point, to 5.66 percent, one basis point off their record low.

The central bank left its benchmark one-week repo rate unchanged at 5.5 percent at the Monetary Policy Committee meeting today. It increased the effective foreign-exchange reserve requirement ratio to 11.5 percent from 11.1 percent, withdrawing $940 million in liquidity from the market. The bank also increased the effective lira reserve requirements to 11 percent from 10.8 percent for all maturities today.

Central Bank Governor Erdem Basci is looking to slow inflation to 5 percent this year, while he seeks to curb loan growth to 15 percent. Lending jumped 19.1 percent in the 12 months to Feb. 8, according to data published by the banking regulator on Feb. 18.

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

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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