May 29, 2018 / 11:51 AM / 4 months ago

UPDATE 1-Turkish lira weakens, giving up some of previous day's gains

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ISTANBUL, May 29 (Reuters) - Turkey’s lira weakened on Tuesday, giving up some gains from the previous session, when it had racked up its best one-day performance in 16 months on the central bank’s announcement it would return to a single policy rate.

The bank on Monday said it would revive its one-week repo rate as its funding benchmark, marking the latest move by authorities to reassure investors about the direction of monetary policy and give the ailing currency a boost.

The governor of the central bank, Murat Cetinkaya and Deputy Prime Minister Mehmet Simsek are meeting with investors in London on Tuesday, as part of Ankara’s appeal to foreign investors after last week’s crisis, when the central bank was forced to hike rates an emergency meeting.

“The return to a standard structure of interest rates is an important signal in the current environment in which investors are questioning the independence of the central bank and its commitment to orthodox monetary policy tools,” analysts at Goldman Sachs said in a note to clients following Monday’s move.

At 1149 GMT, the lira was at 4.6215 to the dollar, weakening from Monday’s close of 4.58, when the it advanced more than 2 percent, its biggest one-day gain since January 2017. Last week the currency it hit a record low of 4.9290, prompting the central bank’s emergency action.

The currency was also hit by a stronger dollar, which firmed against emerging market currencies

The central bank hiked its late liquidity window rate, the highest of the four interest rates it uses, by 3 percentage points to 16.5 percent. Investors have hammered the lira - at one point sending it down by as much as 20 percent this year - on deepening concerns about President Tayyip Erdogan’s grip on monetary policy.

The bank has for years used multiple rates to set borrowing costs, creating a complex system that economists say has made policy less predictable. Adding to their concerns, Erdogan, a self-described “enemy of interest rates” has repeatedly called for lower borrowing costs to boost credit and construction.

Simsek said overnight that he and Cetinkaya would meet 90 portfolio managers, bank executives and analysts in groups between 7 am (0600 GMT) and 10 pm in London.

“We are making intensive efforts for Turkey’s positive decoupling with our decisive police steps, good communication and our strong long-term story,” Simsek wrote on Twitter.

The yield on the benchmark 10-year bond was at 14.16 percent, down from 14.20 percent in spot trade on Monday.

The main BIST 100 share index fell 1.54 percent to 104.883 points.

Reporting by Daren Butler; Additional reporting by Karin Strohecker in London; Editing by David Dolan

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