Turkey’s Basci Extends Forward Guidance on ‘Tightening Days’

Turkey’s central bank said it will hold three dollar auctions from the end of this month until the end of January, a move seen as an attempt by Governor Erdem Basci to extend the period of forward guidance to the market.

The central bank said it will implement so-called “extra tightening days” on Nov. 28, Dec. 30 and Jan. 30, selling at least $100 million and refraining from offering funding to the market at the benchmark 4.5 percent rate. Until today, the bank used to announce similar actions on a weekly basis.

“The central bank is sending the message that it will continue additional tightening for a long time,” Ugur Kucuk, a fixed-income strategist at Is Investment & Securities in Istanbul said by phone today. “What the bank is trying to do is to maintain tight policy until the inflation outlook is in line with their targets.”

The decision comes a day after policy makers told economists to start disregarding its benchmark one-week repurchase rate of 4.5 percent. Instead, economists should view the new benchmark measure as the market’s overnight repo rate quoted at the Borsa Istanbul, which the bank aims to bring in line with the overnight lending rate at 7.75 percent, according to three attendees at the meeting in Ankara.

The central bank said Nov. 19 that inflation was likely to stay above its target for “some time.” It kept all three main interest rates unchanged and decided to stop monthly repurchase auctions to strengthen its “cautious stance and reduce the volatility of short-term money market rates.”

Before it's here, it's on the Bloomberg Terminal.