State banks help steady Turkish lira despite oil jump

By Nevzat Devranoglu

ANKARA (Reuters) - The Turkish lira was flat on Monday despite another jump in oil prices, and three traders said state banks were again selling dollars to support the currency through market turbulence after the U.S. killing of a top Iranian commander.

The lira was at 5.9735 against the dollar, little changed from Friday's close at 5.9740.

It weakened 11% last year, in part due to Turkey's military incursion in Syria and the threat of U.S. sanctions, bringing losses over the last two years to 36%.

"The state (banks) are in the market on the forex supply side today too, as they were on Friday," one trader said. "It is difficult to say how many dollars are being sold but it's clear they will not allow an excessive loss in the lira's value."

Since March of last year, traders have pointed to occasional state bank interventions to stabilize the lira.

The U.S. killing last week of Iranian commander Qassem Soleimani fueled geopolitical tensions and brought more selling pressure on both the lira and on oil, sending crude prices up another 2% on Monday and hurting emerging-market currencies.

Turkey relies on imports for almost all of its energy consumption including oil.

State banks have not spoken publicly about the interventions, though Turkey's central bank has said they have been more active in markets this year conducting two-way transactions.

"We can say that there was support for the lira, particularly on Friday, in order to reduce the impact of geopolitical tension," said a senior banker.

"When we look at state banks' foreign exchange positions, we can see that in the last weeks of the year steps began to support the lira."

The yield on the benchmark 10-year bond (TR10YT=RR), which has fallen from 21% in May, was steady at 12.4% on Monday.

The main BIST 100 share index (XU100), which fell 1.94% on Friday, was down 1.4% on Monday.

Investors are also weighing up the outlook for Turkish monetary policy after data on Friday showed annual inflation rose slightly more than expected to 11.84% in December, narrowing the window for more rate cuts in 2020.

Encouraged by the government to cut aggressively to lift the economy out of recession, the central bank slashed its key policy rate to 12% by December from 24% in July.

Bankers said the Treasury could make a eurobond issue this week but such an issue, often made early in the year, could be delayed for several weeks due to the lessened global appetite.

The Treasury will begin switch auctions this week, holding three such auctions on Tuesday. It will buy back fixed-coupon, floating-rate and CPI-indexed securities maturing in 2020 and issue bonds maturing in 2027.

Investors who met Turkish authorities in September told Reuters they expected the Treasury to start issuing longer-term bonds after the sharp cuts in interest rates.