March 17, 2017•Update: March 17, 2017
By Fatih Erkan Dogan
ANKARA
Turkish currency's value against the dollar increased by 0.4 percent and stocks moved up on Friday, hovering around their highest-levels yet in more than two years.
The upbeat trend comes following fewer than anticipated rate hikes from the U.S. Federal Reserve and Turkey's Central Bank's unorthodox tightening steps to support its markets.
Turkey’s benchmark BIST 100 index closed the day with a 0.25 percent increase to stand at over 90,491.39 points -- a 25-month high -- on the last trading day of the week.
The total trading volume stood at 4.1 billion Turkish liras (approximately $1.1 billion).
First driver of rally was seen in Turkish markets when the Fed minutes were published Wednesday night, which announced three rate hikes in 2017, and a wait-and-see attitude that is already priced in the markets.
Turkish Central Bank’s move came after the Fed announcement and further boosted local markets as tightening steps are expected to ease volatility in foreign exchange markets, refreshing the credibility of the bank.
The USD/TRY rate -- seen as an important gauge of economic sentiment -- was down as low as 3.6023, compared with 3.7551 figures seen in Tuesday ahead of key Fed decision and announcement of Turkey’s Central Bank.
The Central Bank on Tuesday hiked its late liquidity window lending rate by 0.75 percentage points, leaving all other key rates on hold, according to a statement from the bank on Thursday.
In Central Bank’s late liquidity window, which banks use between 4 p.m. (1300GMT) and 5 p.m. (1400GMT), the borrowing rate was kept at zero percent while the lending rate, was raised from 11 percent to 11.75 percent.
The average cost of funding rate of banks has increased by 230 basis points since late January when the impact of Central Bank’s intervention started to be seen on markets, according to data from the bank.
On Jan. 12, the U.S. dollar fell around 0.4 percent against the Turkish lira to 3.81 -- after seeing a historic hike of 3.94 -- following the Turkish Central Bank’s announcement it would not hold its usual weekly lira repo auction, aiming to boost the value of the local currency by cutting the amount of lira circulating in Turkish markets.
Apart from measures taken in interest rate actions, the bank also introduced on Jan. 19 a foreign exchange swap mechanism in which the banks lend liras to the Central Bank while borrowing dollars to pay at a due date with a predetermined interest rate.
The move is also an instrument to cut down the lira's liquidity and boost the Turkish currency as the cost of borrowing from banks in the local currency increases.
The U.S. dollar fell slightly against the Turkish lira on Thursday following the Turkish Central Bank’s announcement that it would not hold its usual weekly repo auction this week.
The dollar stood at 3.81 lira after the statement, down from 3.94 liras on Wednesday.
