The lira rallied the most in more than a month on bets the central bank will raise lenders’ reserve requirements to bolster its foreign-exchange holdings.
The Turkish currency appreciated 0.8 percent to 1.8358 per dollar at 5:01 p.m. in Istanbul, the biggest jump since April 24 on a closing basis. Yields on two-year benchmark debt fell eight basis points, or 0.08 percentage point, to 9.45 percent, the lowest level since May 10.
Turkey’s Monetary Policy Committee will convene tomorrow and may increase the proportion of foreign-currency reserves lenders deposit with the central bank. Reserves have retreated from $85.9 billion in October -- when Governor Erdem Basci introduced a flexible interest rates policy to defend the currency -- to $80 billion on May 18. Part of the reduction is down to the bank selling dollars last year to boost the lira, which fell 18 percent in 2011.
“We expect a change in requirements tomorrow that will boost the central bank’s reserves by $2.5 billion,” Murat Yardimci, head of trading at ING Bank AS in Istanbul, said in e-mailed comments.
The central bank refrained from lending at its lowest 5.75 percent policy rate throughout last week, keeping the policy tight. Turkey’s inflation rate rose to 11.1 percent in April, the highest in 3 1/2 years, and the bank’s forecast is for 6.5 percent by the end of this year.
The Ankara-based bank varies its policy rate daily between 5.75 percent and 11.5 percent within the so-called interest rate corridor to support the currency. Basci will probably keep the policy band unchanged at the meeting tomorrow as the bank seeks to cut inflation, a Bloomberg survey of 10 economists showed.
The lira gained 3 percent this year in the biggest appreciation among more than 20 emerging-market currencies tracked by Bloomberg after the Colombian peso as the central bank supported the currency through higher funding rates.
The bank lent 3 billion liras ($1.6 billion) at 5.75 percent in its one-week repurchase agreements auction today against 15.6 billion lira of bids, driving down the interbank borrowing costs to the lowest in 10 days. That has failed to stop the lira from strengthening, which is up as much as 1 percent in intraday trading.