Turkey lira misery if the central bank has the financing costs higher

(Bloomberg) – The pressure on Turkey’s lira shows early signs of relief, with the central bank continuing with more aggressive tightening to offer a buffer from local political and global trade risks. The weighted average financing cost of the central bank has risen to its highest level this year – 48.8% from Monday – according to the latest data compiled by Bloomberg. This is even higher than the measure of 46% and indicates that policymakers want to hold a stricter view to counteract the demand for dollars. The central bank is pushing the average financing cost above the benchmark rate by weakening financing against the one-week Repo rate, forcing banks to access more expensive financing from the higher overnight rate. The adjustment in the financing channels shows that the central bank remains cautious to the demand of the dollar after a volatile period for markets in March, when the detention of Imamoglu Mayor, Imamoglu, urged a quick exit from the Lira-denominated assets. The higher cost of the central banking financing encourages local banks to increase the deposit rates they offer and keep savers in the local currency. Managed FX rate “Terms of today require our central bank to largely manage the exchange rate,” Finance Minister Mehmet Simsek said in an interview with Bloomberg Hoberturk TV on Tuesday. “The central bank has taken the right measures” by generating lira liquidity and tightening financial conditions to ensure disinflation, he said. The Turkish lira has been changed at 38.42 per US dollar from 11am a.m. Istanbul after weakening 1.1% last week. Central bank sales last week amounted to about $ 3.4 billion, of $ 4.3 billion the previous week, according to estimates of Ekkin Isik, the chief economist of QNB Turkey in Ankara. “Although there is some slowdown, especially compared to the heights of the market route,” he said. The stability of the lira, a pillar of the central bank’s tackling program, sentenced to the aftermath of Imamoglu’s prison sentence, which asked for an emergency interest rate hike from the central bank, as well as the billions of dollars of reserves to defend the exchange rate. According to Bloomberg Economics, the interventions cost an estimated $ 53 billion on April 25, with US President Donald Trump’s tariff plans aggravating the fallout. Imamoglu is seen as President Recep Tayyip Erdogan’s most formidable political competitor. Gross FX reserves dropped by $ 3.7 billion in the week to April 18. The central bank collects loud currencies from exporters as well as through executive loan payments that help balance its reserves. The amount it generates from the fx sales of exporters is not publicly disclosed. Careful exposure Another surprise interest rate hike this month, combined with a promise of officials to maintain a tight monetary policy, helps to accept some investors’ concerns. Earlier this month, Morgan Stanley said it was ‘cautious’ to import the Turkish Lira trade. “The demand for foreign exchange has begun to show signs of relief, along with the further tightening of the central bank,” said Unsurer Ilgen, head of the Treasury at Mufg Bank in Istanbul. Meanwhile, rising costs for hedging and forward contracts are also the demand of businesses. “It can help keep the currency under control,” Ilgen said. The Lira forward has yields of one month and three-month indicators of the currency’s foreign financing cost-alls rose to almost 48% on Tuesday, slightly higher than the levels seen last week. “Although there is an emerging slowdown in the FX question, there is still a lack of lira question from foreigners who can ensure relief in the Turkish lira,” Ilgen said. More stories like these are available on Bloomberg.com © 2025 Bloomberg LP first published: 29 Apr 2025, 03:23 pm Ist