ANKARA: Turkey's central bank tightened some credit channels on Friday as the lira plumbed new lows and sources said the authorities had signalled that more such backdoor policy steps would be taken to curb a selloff that began two weeks ago. The currency is down nearly 20% versus the dollar this year, among the worst performers in emerging markets, even though the greenback itself has sagged. The lira fell 2.4% on Thursday and another 1.6% on Friday by 0955 GMT.
The skid has revealed the limits of Ankara's costly interventions in the foreign exchange market and analysts say the central bank may be forced to buck political pressure and raise its policy rate from 8.25%. While a formal monetary tightening may be some way off, the bank has in recent days lifted average funding costs from low levels, while the interbank rate also edged higher on Friday. It has also halted repo auctions and told lenders to use a 9.75% overnight rate instead.
After a meeting with Central Bank Governor Murat Uysal late on Thursday, bank executives came away with the impression that planned policy steps will lift rates to stabilise things, even if the lira remains volatile, six sources told Reuters.
In a separate statement on Friday, the central bank said it will halve the current liquidity limits offered to primary dealers under open market operations as of Monday.
The average rate of funding has risen to 7.88% in recent days, up from 7.34% in mid-July. It was cut sharply in March to limit the coronavirus fallout but the central bank said the support would be phased out early this month.
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