Turkish Central Bank Revives Bond-Buying Drive to Rein In Yields

The Turkish central bank bought government bonds for the first time in more than a year in an attempt to drive down surging borrowing costs.

The bank bought a total of 300 million liras ($22.3 million) worth of bonds maturing in 2027 and 2028 at an auction on Wednesday. The move comes after the yield on 10-year government debt rose to an all-time high of 24.88% on Monday.

Yields have surged over the past year as inflation accelerated to the highest to level in two decades, the fallout of an unexpected easing drive. Under pressure from Recep Tayyip Erdogan, the central bank has cut the key repo rate by 500 basis points since September.

While the bond purchases can help anchor yields, the prospect of more monetary stimulus threatens to further undermine the fragile outlook for inflation. The lira is showing signs of faltering again, having weakened more than 20% over the past two weeks after rebounding from a record low in December.

The central bank’s securities portfolio can grow to 5% of assets, according to its annual monetary and exchange rate policy report published late last month. That means the central bank can buy a total 25.5 billion liras worth of bonds in 2022, after accounting for notes that are due to mature this year.

The bank currently has 74.1 billion liras of securities on its portfolio, equivalent to 4.4% of assets. The yield on 10-year government bonds fell as much as 63 points to 23.82% after Wednesday’s auction.