Turkey suspends 1-week repo after lira hits eight-month low

Turkey suspends 1-week repo after lira hits eight-month low
Turkey suspends 1-week repo after lira hits eight-month low

Turkey's Central Bank suspended 1-week repo auctions on Thursday to support the lira after it slipped 1 percent to

its weakest levelin nearly eight months on the back of investor concerns at the decision tore-run Istanbul's mayoral

election. The lira stood at6.2200 against the dollar at 1018 GMT, recovering some of the day's lossesafter the

central bankannounced that it would suspend repo auctions in response to what it said was"developments in

financialmarkets."Earlier, it tumbledas far as 6.2460, its weakest level since Sept. 24, from Wednesday's close of6.1790.

The suspension ofthe repo auctions is one of central bank's secondary tools to tighten policy tostabilise the

currency. Bankerssaid the central bank's move would gradually raise the average cost of fundingto 25.5 percent.

 The Central Bank took similar actionon March 22, when the lira plunged a week before local elections. Since the

vote, and thecontested outcome of the Istanbul mayoralty, the currency has weakened morethan 10 percent.After

weeks of appeals byPresident Tayyip Erdogan's AK Party and its nationalist MHP ally, Turkey's HighElection

Board (YSK) ruledon Monday for a re-run of the Istanbul mayoral election, which was narrowly wonby the opposition.

Investors fear thatthe decision to re-run the Istanbul election on June 23 will add nearly twomonths of uncertainty

over Turkey's planto rebalance and stabilize the economy. Tim Ash, senior emerging marketsstrategist at BlueBay

Asset Management,said the Central Bank move would limit the amount of lira available for Turksto buy foreign

currency. "But(this is) only stop gap, when real problem is zero credibility around macromanagement in Turkey," Ash tweeted.

The cost ofinsuring Turkey's exposure to its sovereign debt also rose, with five-yearcredit default swaps jumping

11 basis pointsfrom Wednesday's close to 483 basis points, similar levels to the run up to theMarch 31 elections,

according to IHSMarkit.Its dollar bondsalso slumped across the curve, with the 2026 issue dropping 1.6 cents,Refinitiv data showed.

The yield on the10-year benchmark bond rose to 21.17 percent in spot trade from 20.99 percenton Wednesday,

while the two-yearbenchmark bond surged to 24.43 from 23.05. The main BIST100 share index was down1.56 percent, while the banking share index tumbled 1.82 percent. 

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