ISTANBUL: Turkey's lira weakened again on Thursday ahead of the central bank's policy rate decision, losing some of the gains sparked by President Tayyip Erdogan's promise to energy executives that he had "good news" to announce.
The lira, as well as shares of energy and petrochemical companies, rallied on Wednesday after Erdogan's comments. A Turkish source said he was referring to the discovery of energy resources in two locations in the Black Sea, one of which was of significant size, while two sources spoke of promising signals from initial exploration in the Mediterranean.
The lira stood at 7.3200 against the dollar at 0744 GMT, weakening from a close of 7.2830 on Wednesday. It hit a record low of 7.4 in previous days but after Erdogan's announcement it firmed as much as 7.2160.
The currency is now down some 19% this year, mainly due to concerns over the central bank's depleted forex reserves, costly interventions in the forex market and Turks' surging demand for hard currencies.
The currency hovered around 6.85 against the dollar for two months before beginning to decline in late July. As the currency's value fell, expectations that the central bank hikes interest rates increased.
But the bank has so far foregone a formal hike and has instead tightened policy through back-door steps, including liquidity measures and lending at higher levels than the policy rate.
The weighted average cost of funding has risen to 9.37% as of Wednesday, from a low of 7.34% on July 16. The resulting increase in funding rates are also eventually reflected on commercial banks' interest rates.
The central bank is expected to keep its policy rate on hold at Thursday's meeting but is seen driving funding costs higher with more back-door steps, a Reuters poll showed.
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