Turkey’s Central Bank suspended 1-week repo auctions on Thursday to support the lira after it slipped 1 percent to
its weakest level in nearly eight months on the back of investor concerns at the decision to re-run Istanbul’s mayoral
election. The lira stood at 6.2200 against the dollar at 1018 GMT, recovering some of the day’s losses after the
central bank announced that it would suspend repo auctions in response to what it said was “developments in
financial markets.” Earlier, it tumbled as far as 6.2460, its weakest level since Sept. 24, from Wednesday’s close of 6.1790.
The suspension of the repo auctions is one of central bank’s secondary tools to tighten policy to stabilise the
currency. Bankers said the central bank’s move would gradually raise the average cost of funding to 25.5 percent.
The Central Bank took similar action on March 22, when the lira plunged a week before local elections. Since the
vote, and the contested outcome of the Istanbul mayoralty, the currency has weakened more than 10 percent. After
weeks of appeals by President Tayyip Erdogan’s AK Party and its nationalist MHP ally, Turkey’s High Election
Board (YSK) ruled on Monday for a re-run of the Istanbul mayoral election, which was narrowly won by the opposition.
Investors fear that the decision to re-run the Istanbul election on June 23 will add nearly two months of uncertainty
over Turkey’s plan to rebalance and stabilize the economy. Tim Ash, senior emerging markets strategist at BlueBay
Asset Management, said the Central Bank move would limit the amount of lira available for Turks to buy foreign
currency. “But (this is) only stop gap, when real problem is zero credibility around macro management in Turkey,” Ash tweeted.
The cost of insuring Turkey’s exposure to its sovereign debt also rose, with five-year credit default swaps jumping
11 basis points from Wednesday’s close to 483 basis points, similar levels to the run up to the March 31 elections,
according to IHS Markit. Its dollar bonds also slumped across the curve, with the 2026 issue dropping 1.6 cents, Refinitiv data showed.
The yield on the 10-year benchmark bond rose to 21.17 percent in spot trade from 20.99 percent on Wednesday,
while the two-year benchmark bond surged to 24.43 from 23.05. The main BIST100 share index was down 1.56 percent, while the banking share index tumbled 1.82 percent.