June 24, 2013 / 9:03 AM / 5 years ago

UPDATE 1-Turkish central bank seeks to ease pressure on lira, rates

* Bank wants low rates without weakening lira

* Local currency near its weakest ever

* Bank to resume funding through daily repos (Adds details, analyst comment)

By Seda Sezer

ISTANBUL, June 24 (Reuters) - Turkey’s central bank said on Monday it would hold one-off forex auctions of at least $150 million on days when it provides lira funding at its policy rate, in a bid to keep interest rates low without weakening the currency.

The bank did not hold a daily repo auction for a third day on Friday as it sought to support the lira by squeezing liquidity, but Governor Erdem Basci said it would resume funding at its policy rate if global conditions continue to calm.

The bank has held a series of forex auctions to try to support the currency, which is trading near record lows. It sold $350 million in six forex auctions on Thursday and opened another $50 million auction on Friday morning.

On Monday, the central bank said it would hold a one-week repo auction with a volume of 4.5 billion lira ($2.3 billion), with funding to be provided at its policy rate of 4.5 percent.

“The central bank does not want interest rates to rise. Therefore it wants to return to funding from its policy rate, but this will reduce the attractiveness of the lira,” Garanti Securities strategist Tufan Comert said.

“So demand for foreign exchange will rise and with foreign exchange selling auctions the bank will try to balance this.”

The lira firmed to 1.9427 against the dollar by 0741 GMT from 1.9470 before the central bank announcement. The currency hit a historic low of 1.9499 to the dollar last week.

“The composition of the liquidity provided by the bank will be gradually shifted from net foreign assets to net domestic assets until the next monetary policy committee meeting,” the bank said in a statement.

The lira, along with other emerging markets currencies, has also been hit by a sell-off triggered by the U.S. Federal Reserve signalling it would wind down its bond-buying stimulus programme.

Bankers have said Turkey’s central bank could call an emergency meeting soon and raise the upper end of its interest rate corridor.

The central bank held its monthly rate-setting meeting on Tuesday and kept its main one-week repo rate at 4.50 percent, its borrowing rate at 3.5 percent and its overnight lending rate at 6.5 percent.

Average funding costs also rose from 4.84 percent on Wednesday to 5.26 percent as of Thursday after the bank’s measures, and it rose further to 5.66 percent on Friday. ($1 = 1.9388 Turkish liras) (Reporting by Seda Sezer; Editing by Nick Tattersall)

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