Central Bank halts regular dollar sales for flexibility

ISTANBUL - Hürriyet Daily News

Central Bank Governor Erdem Başçı.

Turkey’s Central Bank held its interest-rate corridor policy at a Monetary Committee Board meeting yesterday, repeating it will keep on supporting the value of the Turkish Lira mainly via daily United States dollar auctions but with a new strategy.

The Ankara-based Central Bank said it has halted regular auctions of $50 million every day, replacing it with a more flexible decision to sell up to $500 million “if needed.”

“The regular sales were about smoothing volatility and the exchange rate has stabilized now,” Ozan Gazitürk, economist for Şekerbank in Istanbul, told Bloomberg News during a phone interview yesterday. The Central Bank announced on its website it will keep on varying the one-week repo rate between 5.75 percent and 12.5 percent every trading day. 

“The Central Bank clearly does not want to spend its foreign exchange reserves anymore, but to eliminate the possible negative impact of this decision on the currency, it implicitly hinted the effective funding cost will rise by having more funding via one-month repo auctions,” Özgür Altuğ, the chief economist at BGC Partners, said in a written statement to investors after the decision. 

‘Sign of stability’

The bank increased its one-month repo auctions from $12 billion to $20 billion.

The lira, which was trading at nearly 1.82 per dollar yesterday, has already strengthened to over 5 percent against the U.S. dollar since late December, according to Nordea Emerging Markets Research data. 

“The decisions overall signal a stable currency for now and slightly higher bond yields going forward,” Altuğ said. 

The Treasury, meanwhile, sold a total net of $2.6 billion of Dec. 4, 2013, benchmark bonds at an average annual yield of 10.28 percent in an auction and earlier non-competitive sale.