ISTANBUL: The Turkish lira hits its strongest since early March versus the dollar on Thursday while bond yields edged down as the central bank continued a campaign to drive up banks' cost of borrowing and boost the currency.
The Turkish Central Bank said it will hold a competitive intraday one-week repo auction of 6 billion lira ($3.37 billion) within its "exceptional days" policy on Thursday, instead of holding its usual cheap fixed-rate repo auctions. Rates at the intraday auctions are normally several percentage points higher.
By 0807 GMT, the lira traded at 1.7771 versus the dollar, its strongest since March 9, compared with 1.7814 late on Wednesday.
"The lira's strengthening is driven by the central bank's monetary tightening. I think it would be even stronger if local companies would not buy dollars," said a forex trader of a bank in Istanbul.
Turkish companies buy dollars to pay their import bills.
"I think the bank will continue to tighten until the lira firms to 2.05 versus the euro-dollar basket," the trader added.
Against a euro-dollar basket the lira traded at 2.0736, compared with 2.0767 on Tuesday.
The bank switched to the more expensive auctions last week after the lira touched a two-month low of 1.8250 versus the dollar and pierced the key level of 2.10 versus a euro-dollar basket.
Since the bank started tightening, total lira funding stock has dropped to 27 billion lira from around 38 billion lira.
The bank also adopted a more hawkish bias at its monthly policy meeting earlier this week and announced it will reduce daily repo funding to a band of 1-6 billion lira, from a previous 3-7 billion lira, while the upper limit of one-month repo auction volumes was lowered to 5 billion lira from 6 billion for the March 30-April 19 period.
The bond market saw very thin trade as tighter liquidity conditions cut domestic investors' appetite for bonds.
The two-year benchmark bond yield declined slightly to 9.43 percent in thin trading volumes, from a previous close at 9.48 percent.
"If the lira does not recover significantly, the central bank will continue to tighten liquidity even after it ends the exceptional days policy. So the decline of bond yields will be limited in the short term," said Tufan Comert, strategist at Garanti Securities.
The Turkish Central Bank has been pursuing multiple objectives including boosting the lira to reduce both inflationary pressures and a large current account deficit, while also seeking to support to a slowing economy.
These goals have resulted since late 2010 in a complex policy mix based on variable daily injections of lira funding, a flexible corridor between base lending and borrowing rates, high bank reserve requirement ratios, and a low policy rate.
Istanbul's main stock index was 0.06 percent up at 61,867 points, slightly outperforming a 0.70 percent decline in the MSCI emerging markets index.
"Double top formation at 63,000 creates a weak technical outlook for the Istanbul Stock Exchange (ISE)-100. Next support level for the index stands at 61,000, followed by 60,000," wrote analysts at Alkhair Capital.
Comments
Comments are closed.