(Bloomberg) -- The cost of borrowing Turkish liras overnight in the offshore market spiked above 50% for the first time since early September as traders exited some of their so-called carry positions amid currency losses.
The overnight forward implied yield climbed 11 percentage points to 51%, the highest level since September 3, signaling that overseas funds likely closed out some long-lira positions. Turkey’s lira depreciated on Monday after state lenders abstained from aggressively defending the exchange rate, according to people familiar with the matter.
Selling pressure was less severe on Tuesday, with state banks backstopping the currency, according to traders familiar with the transactions, who asked not to be identified because they weren’t authorized to speak publicly. Next-day offshore forward implied yields eased from the day’s high of 62% to trade around 56.5%.
The lira traded 0.2% lower at 34.5945 per dollar as of 1:50 p.m. in Istanbul, a record low on a closing basis.
The heightened pressure on the currency comes before the central bank holds a meeting on interest rates on Tuesday, where it’s expected to keep the benchmark unchanged at 50%.
“There is some cautiousness ahead of the policy meeting, some profit-taking activity in case the central bank makes too dovish signals that may disappoint investors,” said Onur Ilgen, head of treasury at MUFG Bank Turkey in Istanbul. “That said, current stressed short-end pricing is unlikely to continue more than a week once the central bank meeting is over.”
©2024 Bloomberg L.P.