The lira appreciated for a fourth day and jumped the most in almost eight weeks on bets the central bank would continue supporting the currency to rein in inflation.
The Turkish currency gained as much as 0.8 percent, the most since Feb. 1, and traded 0.7 percent higher at 1.7886 per dollar by 5:00 p.m. in Istanbul, its biggest rise since Feb. 28 on a closing basis. Yields on the two-year benchmark government debt rose the most since March 8, adding 13 basis points, or 0.13 percentage point, to 9.54 percent.
The Central Bank of Turkey halted its daily funding of banks at the lowest 5.75 percent benchmark one-week repo rate on March 22, forcing lenders to borrow at rates as high as 11.5 percent. The bank lent today 3 billion liras ($1.7 billion) at an average rate of 10.91 percent and an additional 6.3 billion liras to the country’s largest lenders at 11 percent.
“The central bank will limit moves in the lira” and “in case of a renewed depreciation we expect further suspensions of its regular repo auctions or even a resumption of its foreign currency sales,” Thu Lan Nguyen, a currency strategist at Commerzbank in Frankfurt, said in an e-mailed report to clients today.
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 10.07 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. The central bank will restrain lending growth and may also adjust its reserve requirements regime, he said.
Turkey’s current-account gap is the highest in the world at 10.3 percent of the gross domestic product among 60 major economies tracked by the International Monetary Fund. The lira fell 18 percent last year to its record low against the dollar in the biggest decline worldwide as the country’s deficit widened and inflation surged to a three-year high of 10.5 percent.