Turkish Lira continues sinking amid Central Bank’s auction moves

ISTANBUL- Hürriyet Daily News

Stacks of Turkey's lira coins are seen in this photo taken in Istanbul on July 23, 2013. REUTERS photo

The Turkish Lira hovered just off record lows near 2 liras to the dollar, while the 2-year benchmark bond yield inched above 10 percent in quiet trade on Aug. 26. The poor performance indicates that the Central Bank’s efforts to prevent the currency’s slide failed to soothe investor concerns.

The lira was at 1,9916 against the dollar by late afternoon, up from 1.9940 late on Aug. 23, while the two-year benchmark yield rose to 10.16 percent, nosing above 10 percent for the first time in 19 months. 

The lira had undergone a hike above 2 liras during the day, but calmed above 1,900. 

The main Istanbul share index fell 0.07 percent to 67,885.73, underperforming the broader emerging markets index, which rose 0.39 percent, then closed the day at 68.775.

The Central Bank held a forex auction later in a bid to support the lira with a minimum volume of $350 million, in line with additional monetary tightening steps announced last week.

It also held its first one-week, fixed-rate repo auction in almost a week, with a volume of 1.5 billion lira ($755 million).

The bank has been tightening monetary conditions through an unorthodox mix of repo auctions and changes in its interest-rate corridor, its guide on managing liquidity, but has left its main benchmark rate - the one-week repo rate - unchanged at 4.5 percent.

The 10-year benchmark bond yield rose to 10.48 percent from a close of 10.32 percent on Aug.23 with Turkey’s current account weakness and the risk of a cut in the U.S. bond buying program continuing to pressure markets.

Emerging markets fell sharply last week on concerns that the U.S. Federal Reserve could reduce its massive bond buying program as early as next month, with Turkey left particularly exposed by its high current account deficit.