Ankara: Turkey’s central bank effectively closed off two of its lira funding taps on Monday, bankers said, in an apparent attempt to force banks to borrow at a higher rate and stabilise the currency after sharp falls.

The lira has dropped as much as 10 per cent since the start of 2017, battered by concern over Turkey’s political and economic outlook — and doubts about whether authorities will take decisive steps to arrest the slide.

On Monday the central bank opted not to hold a repo auction for the third straight day. The daily auctions, at 8 per cent, are a major source of funding for banks. Price quotations for the Borsa Istanbul repo market were also withdrawn after some funding was provided at 8.5 per cent, bankers said.

By closing off those two taps the central bank would effectively force banks to borrow using its “late liquidity window” at around 10 per cent, bankers said.

“The central bank withdrew the 8.5 per cent quotation,” the manager of a liquidity desk at one bank said.

“There is always the possibility it could offer a quotation again during the day. But if it does not give a quotation, banks will have to fund around 15 billion lira ($4 billion) above 8.5 per cent — at 10 per cent or at a rate near that.” Many economists say a sharp rate hike is needed to stop the lira’s decline.

But President Tayyip Erdogan, a populist who favours cheap credit to spur lending and bolster the construction industry and the economy, has described himself as an “enemy” of interest rates and wants borrowing costs to be low.

The central bank has rolled out a series of measures to limit liquidity and effectively drive up borrowing costs without hiking rates outright — moves that some economists have referred to as “veiled” monetary tightening.

On Monday, an adviser to Erdogan said the central bank has “strong weapons” other than interest rates and will continue to take measures in the face of the weaker lira.

On Friday, the bank cut borrowing limits on the interbank money market in half to 11 billion lira ($2.92 billion) in a further bid to support the currency, whose slide risks further stoking inflation.

BOX — Turkish tax revenues up 12.5% in 2016 — finance minister

ANKARA: Turkish tax revenues climbed 12.5 per cent last year to 458.7 billion lira ($122.4 billion), achieving the government’s target, while privatisation revenues totalled 10.8 billion lira, Finance Minister Naci Agbal said on Monday. Interest spending last year amounted to 50.2 billion lira, lower than a forecast of 56 billion, with the interest spending ratio in the budget falling to 8.6 per cent, Agbal told a news conference in Ankara.

He also said that Turkey ran a budget deficit of 27 billion lira in December, and that Turkey’s budget deficit-to-GDP ratio was seen at 1 per cent in 2017.

-Reuters