The lira strengthened the most in more than two weeks after the Turkish central bank withheld lending at its lowest rate for a second day.
Turkey’s currency appreciated 0.6 percent to 1.7973 per dollar at 5:06 a.m. in Istanbul, heading for the biggest gain since March 26 on a closing basis. The yield on two-year benchmark debt declined nine basis points, or 0.09 percentage point, to 9.35 percent.
The lira has rallied 5.2 percent this year, recouping some of last year’s 18 percent depreciation. Central bank governor Erdem Basci yesterday halted lending at the lower end of the interest rate corridor, 5.75 percent, after the lira weakened to a three-week low on growing concern the European debt crisis may worsen. The central bank received bids for 8.24 billion ($4.6 billion) in its one-week repo auction today. It lent 2 billion liras at 10.92 percent, the highest rate since Jan. 20.
“The central bank has lent support to the lira again,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. The lira might “sustainably break the 1.80 support” against the dollar, she said.
The overnight lending rate on the interbank repo market fell for the first time in three days to 9.9 percent from 10 percent yesterday.