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Lira Gains After Bank Withholds Low-Rate Lending for Second Day

The lira strengthened for a third day after the central bank did not lend at its lowest interest rate for a second day, tightening liquidity to stem the currency’s weakness.

The lira appreciated 0.4 percent to 1.8012 per dollar at 5:15 p.m. in Istanbul. Yields on the two-year benchmark bonds were unchanged at 9.67 percent after rising to as high as 9.78 percent in intraday trading. On the week, the lira is up 0.4 percent and yields have increased 35 basis points, or 0.35 percentage point.

The central bank withheld funding at the lower end of its so-called interest rate corridor yesterday for the first time in more than two months. Instead of the 5.75 percent funding, the bank lent today 5.55 billion liras ($3.1 billion) in overnight repurchase agreements at 11 percent annual interest. It also provided 3 billion liras in one-week repo at an average rate of 10.9 percent and 5 billion liras in one-month repo at 10.22 percent.

“The last time the central bank halted lending at the benchmark interest rate was between Dec. 29 and Jan. 9 and the Turkish lira gained 3 percent against the euro-dollar basket and bond yields climbed to 11.4 percent,” Istanbul-based Tera Brokers said in an e-mailed report to clients today. “The central bank’s actions would support the lira in the short term, however equities are poised to witness more profit-taking as yields rise and global risk appetite diminishes.”

Turkey’s benchmark ISE National 100 Stock Index fell for a fourth day, losing 0.6 percent to 61,417.44, bringing its weekly decline to 1.5 percent.

Overnight Rate Rises

The overnight repo funding rate on the interbank market, the rate at which lenders fund each other for overnight loans, rose to the highest since Feb. 8 to 9.91 percent.

The central bank will do whatever necessary to reduce inflation and it will not hurt the banking industry while doing this, Basci said in a speech at a conference in Istanbul March 21.

“The bank will resort to tightening until inflation is reduced to the 5 percent target,” the governor said. It will restrain lending growth and may also adjust its reserve requirements regime, he said.

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