(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 Sept. 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.
Citigroup said it took profit from part of its Turkish lira exposure ahead of the central bank’s rate decision on Thursday.
“We still believe economic policy is on the right direction in Turkey but attempts to ease rates in December may spark a light reshuffle of foreign positioning,” Citi strategists including Luis Costa said in a note.
Selling pressure was less severe on Tuesday, with state banks backstopping the currency, said 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 49%.
The lira traded less than 0.1% lower at 34.5596 per dollar as of 15:25 p.m. in London.
“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.”
(Updates with market figures and Citi’s comments starting in third paragraph.)
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