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ANKARA, Jan 16 (Reuters) - Turkey's central bank effectively closed off two of its lira funding taps on Monday, bankers said, in an apparent attempt to force banks to borrow at a higher rate and stabilise the currency after sharp falls.
The lira
TRYTOM=D3
has dropped as much as 10 percent since the start of 2017, battered by concern over Turkey's political and economic outlook - and doubts about whether authorities will take decisive steps to arrest the slide.
On Monday the central bank opted not to hold a repo auction for the third straight day. The daily auctions, at 8 percent, are a major source of funding for banks. Price quotations for the Borsa Istanbul repo market were also withdrawn after some funding was provided at 8.5 percent, bankers said.
By closing off those two taps the central bank would effectively force banks to borrow using its "late liquidity window" at around 10 percent, bankers said.
"The central bank withdrew the 8.5 percent quotation," the manager of a liquidity desk at one bank said.
"There is always the possibility it could offer a quotation again during the day. But if it does not give a quotation, banks will have to fund around 15 billion lira ($4 billion) above 8.5 percent - at 10 percent or at a rate near that."
Many economists say a sharp rate hike is needed to stop the lira's decline.
But President Tayyip Erdogan, a populist who favours cheap credit to spur lending and bolster the construction industry and the economy, has described himself as an "enemy" of interest rates and wants borrowing costs to be low.
The central bank has rolled out a series of measures to limit liquidity and effectively drive up borrowing costs without hiking rates outright - moves that some economists have referred to as "veiled" monetary tightening.
On Monday, an adviser to Erdogan said the central bank has "strong weapons" other than interest rates and will continue to take measures in the face of the weaker lira.
On Friday, the bank cut borrowing limits on the interbank money market in half to 11 billion lira ($2.92 billion) in a further bid to support the currency, whose slide risks further stoking inflation.
($1 = 3.7627 liras)
(Reporting by Nevzat Devranoglu and Daren Butler; Writing by David Dolan; Editing by Nick Tattersall) ((daren.butler@thomsonreuters.com; +90-212-350 7122; Reuters Messaging: daren.butler.thomsonreuters.com@reuters.net))
ANKARA, Jan 16 (Reuters) - Turkey's central bank effectively closed off two of its lira funding taps on Monday, bankers said, in an apparent attempt to force banks to borrow at a higher rate and stabilise the currency after sharp falls.
The lira
On Monday the central bank opted not to hold a repo auction for the third straight day. The daily auctions, at 8 percent, are a major source of funding for banks. Price quotations for the Borsa Istanbul repo market were also withdrawn after some funding was provided at 8.5 percent, bankers said.
By closing off those two taps the central bank would effectively force banks to borrow using its "late liquidity window" at around 10 percent, bankers said.
"The central bank withdrew the 8.5 percent quotation," the manager of a liquidity desk at one bank said.
"There is always the possibility it could offer a quotation again during the day. But if it does not give a quotation, banks will have to fund around 15 billion lira ($4 billion) above 8.5 percent - at 10 percent or at a rate near that."
Many economists say a sharp rate hike is needed to stop the lira's decline.
But President Tayyip Erdogan, a populist who favours cheap credit to spur lending and bolster the construction industry and the economy, has described himself as an "enemy" of interest rates and wants borrowing costs to be low.
The central bank has rolled out a series of measures to limit liquidity and effectively drive up borrowing costs without hiking rates outright - moves that some economists have referred to as "veiled" monetary tightening.
On Monday, an adviser to Erdogan said the central bank has "strong weapons" other than interest rates and will continue to take measures in the face of the weaker lira.
On Friday, the bank cut borrowing limits on the interbank money market in half to 11 billion lira ($2.92 billion) in a further bid to support the currency, whose slide risks further stoking inflation.
($1 = 3.7627 liras)
(Reporting by Nevzat Devranoglu and Daren Butler; Writing by David Dolan; Editing by Nick Tattersall) ((daren.butler@thomsonreuters.com; +90-212-350 7122; Reuters Messaging: daren.butler.thomsonreuters.com@reuters.net))
