Lira slips, Turkish Central Bank takes action

Turkey’s Central Bank held its first repo auction for 18 months on June 1 and the lira continued to slide, as investors focused on inflation data due next week.

At 1109 GMT, the lira was trading at 4.62 per U.S. dollar, down 2.2 percent from 4.52 at the market’s close on May 31. It rose to slightly under 4.6 later in the day.

The lira had been lifted by the central bank’s announcement on May 28 that it would return to using the one-week repo rate as its benchmark interest rate, taking a long expected simplification step to make policy predictable.

Resuming repo funding for the first time since January 2017, the central bank injected 29 billion lira at a one-week repo auction on June 1, with bids amounting to 56.77 billion lira.

At an emergency meeting last week it also hiked interest rates by 3 percentage points to support the lira, which has strengthened from a record low of 4.9290 hit on May 23 but is still down 17.6 percent against the dollar this year.

President Recep Tayyip Erdoğan said late on May 31 that citizens who keep money in foreign currency should convert it to lira and that this would teach a lesson to those who are trying to shake Turkey through exchange rates.

Investor attention was also focused on May inflation data, due on June 4, which could boost expectations of another rate hike at the central bank’s rate-setting meeting on June 7.

In a Reuters poll, analysts forecast consumer price inflation would be up 1.45 percent month-on-month.