Lira Touches Record Low as Turkey Resumes Repo Sales; Bonds Fall

Aug. 26 (Bloomberg) -- Turkey’s lira slid, touching its weakest level on record, as the central bank provided funding to lenders at its lowest rate for the first time in six days. Bond yields jumped to a 19-month high.

The currency depreciated to as low as 1.9995 per dollar, the lowest level since at least 1981, and traded down 0.1 percent at 1.9902 at 5:06 p.m. in Istanbul. The yield on two-year benchmark notes surged 42 basis points to 10.16 percent, the highest since January 2012, in their fourth day of advances.

Turkey’s central bank lent 1.5 billion liras ($753 million) at its 4.5 percent one-week repurchase rate at an auction today, while also issuing 21.73 billion liras at the overnight lending rate of 6.75 percent. It also sold $350 million for liras at another auction today. The lira’s 7.2 percent depreciation in the last three months is the steepest among emerging markets in Europe, the Middle East and Africa.

“The central bank provided liquidity and this added to negative factors,” Burcin Metin, the head of currency trading at ING Bank AS in Istanbul, said by phone. “There are no reasons at the moment to be positive about the lira.”

The lira cut its losses after orders for U.S. durable goods fell more than forecast in July after three months of increases, indicating manufacturing will be slow to strengthen and spurring speculation the Federal Reserve will refrain from a large reduction in stimulus.

Turkey’s currency will weaken to 2.05 against the dollar in the fourth quarter, according to forward rates compiled by Bloomberg. It will depreciate to 2.0525 a dollar in December, currency futures traded in Istanbul showed.

“We are estimating that the central bank’s average cost of funding will retreat to around 7 percent from 7.45 percent on Friday,” Ali Cakiroglu, a strategist at HSBC Asset Management, said in an e-mailed note, after the one-week repo auction.

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