ISTANBUL: Turkey's central bank took further steps to push up the cost of borrowing on Tuesday, two days before its monthly rate-setting meeting, as the lira hit a fresh record low against the dollar.
In its latest tightening move the central bank halved banks' borrowing limits for overnight transactions in the interbank money market from Wednesday, signalling that the cost of borrowing will move to a higher rate of 11.25%, bankers said.
Separately, it injected 10 billion lira in a traditional method repo auction at an average simple rate of 11.30%, up from 11.25% on Monday and 10.96% last week.
The lira traded slightly stronger at 7.3900 against the dollar at 1042 GMT. Shortly after the central bank announcement, it weakened to 7.40, matching a record low.
The currency has weakened in eight of the past nine trading days, mainly on concerns over the central bank's depleted forex reserves, costly interventions in the forex market and Turks' surging demand for hard currencies.
As a result of such tightening steps, the weighted average cost of funding rose to 9.17% in Monday from a low of 7.34% on July 16.
A Reuters poll showed that while the central bank is expected to keep its policy rate on hold this week, it is seen driving funding costs higher with more back-door measures.