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Turkey’s central bank increased the interest rate it offers for lira swaps to 11.75 percent after the currency fell to another record low against the dollar.
The rate was increased from 10.25 percent, the Turkish state-run Anadolu news agency reported on Friday. The central bank trades in lira swaps for dollars as part of its monetary policy.
The increase may signal that the central bank plans to raise average funding costs for banks, Anadolu said. The central bank could decide next week to reduce interbank transaction limits and lower the amount of overnight funding, it said.
The Turkish lira dropped to an all-time low of 7.9485 per dollar on Thursday, extending losses this year to about 25 percent. It traded up less than 0.1 percent at 7.9328 per dollar on Friday.
Turkish monetary policymakers increased the benchmark interest rate, known as the one-week repo rate, to 10.25 percent late last month from a previous 8.25 percent.
But the central bank has the option of lending to banks at multiple rates of interest, including the highest late liquidity lending rate of 13.25 percent, meaning average lending costs, rather than the benchmark rate, have become the main guide for investors looking at monetary policy in Turkey.
Inflation in Turkey stands at 11.8 percent, meaning the benchmark interest rate is negative in real terms.
(Story was updated with possible central bank plans in third paragraph.)
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