Lira Sinks to Record 2 Per Dollar as Syria Risks Mount in Turkey

The lira tumbled to 2 against the dollar for the first time after a report Turkey may join a coalition that’s threatening to take action against Syria.

The lira weakened as much as 0.6 percent to 2.0095 a dollar, the lowest since Bloomberg began monitoring the data in 1981, and traded 0.4 percent lower at 2.0053 at 10:10 a.m. in Istanbul. Yields on 10-year bonds increased 32 basis points to 10.5 percent, the highest on a closing basis since June 2010.

Turkey will join a coalition against Syria if the United Nations fails to take action after allegations that forces loyal to Syrian President Bashar al-Assad used chemical weapons, Milliyet newspaper reported, citing Foreign Minister Ahmet Davutoglu. The report comes after U.S. Secretary of State John Kerry said Syria will be held accountable for using chemical weapons. The lira was the worst performer among emerging-market currencies in Europe, the Middle East and Africa in the past five days.

“Syria, geopolitical risks and lessening global risk appetite are affecting all emerging-market currencies,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA in Geneva, said in e-mailed comments. “The central bank’s daily additional tightening policy is completely ineffective and makes an opposite effect in the market as it drains the reserves.”

Draining Reserves

The Turkish central bank has been trying to shore up the lira by tightening monetary policy. It sold $700 million at auctions in the last two days and refrained from providing funds at the lowest lending rate in its three-pronged interest rate corridor between Aug. 20 and Aug. 26.

Policy makers have drained $8.65 billion from the nation’s foreign-exchange reserves to support the currency. The central bank raised the overnight lending rate by 50 basis points, or 0.5 of a percentage point, to 7.75 percent on Aug. 20, while keeping the benchmark one-week repurchase rate and the overnight borrowing rate unchanged.

The central bank had $109 billion in reserves as of Aug. 16, it said last week. Excluding foreign exchange from banks, less than $50 billion is available for dollar auctions, London-based Luis Costa, an emerging-markets currency strategist at Citigroup Inc., said Aug. 22.

The Ankara-based Treasury will hold auctions today to sell 15-month zero-coupon bonds and re issue March 2020 floating-rate notes. Central Bank Governor Erdem Basci will give an interview today to the Anatolia News Agency.

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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