Turkish Lira Set for Weakest on Record as Repo Lending Resumes

The Turkish lira headed for the weakest level on record as the central bank provided funds to banks at its benchmark 4.5 percent rate for the first time in six days. Bond yields jumped to a 19-month high.

The currency depreciated 0.5 percent to 1.9982 a dollar at 12:20 p.m. in Istanbul, set for its lowest level since at least 1981, when Bloomberg started tracking the data. The lira was the third-worst performer after India’s rupee and Mexico’s peso among 31 major currencies tracked by Bloomberg today. The yield on 2-year government bonds jumped 38 basis points to 10.12 percent, the highest on a closing basis since January 2012.

The central bank lent 1.5 billion liras ($751 million) at the 4.5 percent one-week repurchase rate at an auction today, while also issuing 4.82 billion liras at the overnight lending rate of 6.75 percent. It said it would sell at least $350 million more at an auction later today. The lira’s 7.5 percent depreciation in the last three months was the biggest among emerging markets in Europe, the Middle East and Africa.

“The central bank provided liquidity and this added to negative factors,” Burcin Metin, head of currency trading at ING Bank AS in Istanbul, said by phone. “There are no reasons at the moment to be positive about the Turkish lira.”

The lira will weaken to 2.05 against the dollar in the fourth quarter, according to forward rates compiled by Bloomberg. The currency will fall to 2.0555 a dollar in December, currency futures traded in Istanbul showed.

“We are estimating that the central bank’s average cost of funding will retreat to around 7 percent from 7.45 percent on Friday,” Ali Cakiroglu, a strategist at HSBC Asset Management, said in an e-mailed note, after the one-week repo auction.

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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