ANKARA/NEW YORK: Turkey's lira rebounded from an all-time low on Wednesday, a day before the central bank is expected to take more back-door steps to rein in credit, while a formal rate hike remains a less likely option to support the sagging currency.
A series of back-door tightening moves has lifted average funding costs above the central bank's main policy rate, set at 8.25%. The latest was a halving of interbank borrowing limits in money markets.
The lira was up 1% at 7.31 against the dollar, still close to a record low of 7.4 touched on Tuesday. It has lost nearly 20% of its value this year, among the worst performers globally.
Istanbul's main stock index jumped 2.2%, driven by energy companies, after Turkish President Tayyip Erdogan said during an industry event that "good news" was due to be announced on Friday, but gave little detail.
The currency has been hit in recent weeks by concerns over costly state interventions in forex markets and Turks' demand for hard currencies, which is at a record high.
The central bank has been stretched thin in Turkey's response to the pandemic and its gross reserves have fallen below $47 billion from $81 billion this year. On Wednesday it conducted a repo at an average rate of 11.27%.
One banker said the central bank is responding to recent comments by Finance Minister Berat Albayrak, who stressed the importance of a competitive currency.
The move to reduce liquidity limits at the overnight lending rate of 9.75% could suggest the central bank will switch to funding through its late liquidity window (LLW) rate, which at 11.25% is the highest in the policy corridor, although still below Turkey's 11.76% annual inflation.
Analysts say the steps have taken some pressure off the currency and signalled that a formal monetary tightening is not in the cards at a policy meeting on Thursday, especially given political pressure to maintain stimulus amid coronavirus fallout.
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