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First Turkish 3-month repo attracts 9.89 pct rate

Reuters - Saturday, June 20

* Central bank holds first 3-month repo to boost liquidity

* Total bids 5.742 billion lira

ISTANBUL, June 19 - Turkey's Central Bank injected two billion lira into the market in its first three-month maturity repo auction on Friday at an average simple interest rate of 9.89 percent.

The bank announced this week it would hold three-month repo auctions each Friday for one month as it bids to counter an expected liquidity squeeze in the next few months. August will be a particularly heavy debt redemption period.

Central bank data <CBTG> showed total bids amounted to 5.742 billion lira for the repo, maturing on Sept. 18.

One Istanbul trader said the rate appeared somewhat high for the 3-month repo, especially as the highest rate paid is above 10 percent.

"This makes sense as three-month funding is scarce in Turkey," he said, but added that two billion lira was a limited amount.

After one month of 3-month repos, the bank will hold 1-, 2- or 3-month repos on Fridays depending on liquidity conditions. These repos will be held in addition to existing one-week repos, which will remain the bank's basic funding instrument.

In Friday's one-week repo, the bank injected 8 billion lira into the market with an average simple rate of 8.96 percent.

Total bids amounted to 11.28 billion lira, for the repo maturing on June 26.

The central bank cut key interest rates by a larger-than-expected 50 basis points this week in a bid to boost the ailing economy. The cut brought total easing to 800 basis points since last November and left the borrowing rate at a historic low of 8.75 percent.

Economists have said liquidity could also tighten further in the months ahead due to uncertainty over whether the government will agree a loan accord with the International Monetary Fund to replace the $10 billion deal which expired in May last year. (Reporting by Alexandra Hudson; Writing by Daren Butler; Editing by Chris Pizzey)

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