Turkey’s Lira Declines Again, Boosting Pressure on Central Bank

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The lira weakened for a fourth day in a sign to traders that the central bank’s efforts to stem its declines by raising the average cost of borrowing are falling short.

The Turkish currency slid almost 0.4% versus the dollar, bringing its depreciation this month to almost 6%, the most in emerging markets.

The central bank has sought to anchor the currency by raising the cost of funding ahead of Thursday’s policy meeting. While the benchmark one-week repo rate is at 8.25%, policy makers are offering funding though more expensive channels. On Monday the central bank lent 10b liras in a conventional auction at a 11.25% yield.

For Deutsche Bank AG’s Christian Wietoska, the lira’s retreat shows the policy isn’t working.

“We target 12% by September and in case lira does not stabilize,” he said. “Anything else would keep the pressure high on Turkish local assets, particularly during periods of a deteriorating external backdrop.”

The central bank will probably raise the rate to 10% on Thursday, he said.

Market Metrics

  • USD/TRY +0.3% at 7.3920
  • 10-year benchmark dollar bond yield +4bps to 7.05%
  • 5-year CDS little changed at 566bps
  • Borsa Istanbul 100 Index -0.2% to 1,081.83
  • U.S. Treasury 10-year bond yield -1bps to 0.7%
  • Brent crude +0.8% to $45.17 per barrel

What to Watch:

Data Period Estimate Prior
Home Sales Jul no est. 190.0k
Home Sales (YoY) Jul no est. 209.7%
Central Gov’t Budget Balance Jul no est. -19.4b

Key News:

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  • Turkey’s Homemade Economic Pain Won’t Cost Traders Any Sleep
  • Cavusoglu: Greece Shouldn’t Harass Turkish Seismic Ship

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