Turkish bank withholds funding at auction in policy tightening; lira falls

Turkey’s central bank has withheld funding in an auction on Friday in a further step to tighten monetary policy, local news channel Bloomberg HT reported.

The central bank will not engage in transactions of so-called reverse repo at the overnight rate of 11.75 percent in the auction held via the Istanbul Stock Exchange today, Bloomberg HT said, citing sources at the bank. Recent funding via this method has amounted to about 5 percent of total funding, it said.

Turkish Central Bank Governor Murat Uysal said this week that the bank will continue to tighten monetary policy if needed after the lira hit consecutive record lows against the dollar. The bank is lending to Turkish banks at varying costs via a so-called interest rate corridor that stretches from the benchmark rate of 10.25 percent to the late liquidity window rate of 14.75 percent, rather than increasing the benchmark.

The lira hit a fresh record low of 8.342 per dollar on Friday. It traded down 0.3 percent at 8.3123 per dollar at 10:48 a.m. local time.

On Thursday, the central bank provided funding to banks in an auction of one-month debt at 14.76 percent, marginally above the late liquidity window rate.

The average cost of funding rose to more than 13 percent this week, the highest in more than 10 months, from as low as 7.5 percent in July.