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Lira Climbs Most in Week as Central Bank Restricts Repo Funding

The Turkish lira climbed the most in a week as the central bank reduced funding to lenders at an auction of repurchase agreements today.

The currency strengthened 1.3 percent to 2.2543 per dollar at 5:48 p.m. in Istanbul, the biggest increase since Jan. 28 on a closing basis. Yields on the government’s two-year notes fell 21 basis points to 10.83 percent, the lowest since Jan. 23.

The central bank provided 1 billion liras ($444 million) of one-week repos, the least in six days, as policy makers stepped up efforts to raise borrowing costs to stem the lira’s slide and tackle accelerating inflation. They more than doubled the benchmark interest rate to 10 percent at an emergency meeting late on Jan. 28 and the following day raised average funding costs to 9.26 percent, the highest level since June 2012.

Average funding costs may cross 10 percent if the central bank cuts funding at the repo auction, said Ali Cakiroglu, a strategist at HSBC Asset Management in Istanbul. Tighter funding conditions supported the lira “to some extent,” he said.

Other developing-country currencies also increased today, with South Africa’s rand and Mexico’s peso appreciating at least 1 percent versus the dollar. U.S. factory output expanded at the weakest pace in eight months in January as orders slumped, according to data released yesterday.

The currency’s advance today trimmed its 2014 retreat to 4.7 percent. The lira’s three-month implied volatility fell 7.8 percent to 14.7 today, the lowest level in almost two weeks, according to data compiled by Bloomberg.

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