Turkish lira weakens after auction

ISTANBUL: The Turkish lira extended losses versus the dollar on Friday after the central bank sold a lower-than-expected amount of dollars in an auction while shares rose following the recovery of global risk sentiment after positive US data.

The Turkish Central Bank sold just $50 million in its forex-selling auction on Friday, lower than the original amount of $1.35 billion it announced as maximum in the morning.

After the announcement the lira weakened as far as 1.8905 versus the dollar from 1.8834 beforehand. By 1250 GMT, the lira traded at 1.8970 versus the dollar, weaker from 1.8890 on Thursday afternoon.

"The lira's lowest ever level is 1.9095 and the central bank tries to manage expectations by announcing large volumes in forex selling auctions to avoid the currency weakening above this level.

If the lira firms due to global factors, the bank opt to sell lower than the amount already announced," said a specialist from a portfolio company.

"If the bank continues this strategy, there are chances to lose its credibility. But, it can still surprise the markets by selling $700-750 million if the lira gets closer to its weakest level," he added.

On Thursday, the Turkish Central Bank said it would sell a maximum $1.7 billion in its daily forex-selling auctions on Friday and Monday. Against its euro-dollar basket the lira traded at 2.1880, compared with a previous close of 2.1778.

Istanbul's main share index was up 0.46 percent at 51,826 points, underperforming the MSCI emerging markets index, which was up 0.89 percent.

"Shares are moving in tandem with the global markets. Better-than-expected US data improved the sentiment. However, this increase won't be permanent, there is not a fundamental reason which would trigger a rise in shares," said Aydin Sozubir, research manager at Tacirler Securities.

The yield on Turkey's new benchmark bond maturing on Dec. 4, 2013 stood at 10.43 percent in early over-the-counter trade, down from a previous close of 10.46 percent.

Markets shrugged off comments from Deputy Prime Minister Ali Babacan, who also oversees the economy, saying the Turkish Central Bank may reduce reserve requirement ratios (RRRs) to support the banking sector if necessary.

Markets also ignored Turkish Banks Association presentation, which said recent measures introduced by the central bank had created an additional cost of 8 billion lira ($4.23 billion) for the banking sector.

Following two years of strong profits, Turkey's banks have been braced for a downturn this year after the central bank raised banks' required reserve ratios in order to slow down rampant loan growth. The central bank has said it wanted to keep loan growth at 25 percent this year after loans expanded 34 percent in 2010.

Copyright Reuters, 2011