UPDATE 1-Turkey central bank to hold fx auctions daily in further tightening to support lira
to support lira@ (Adds quote, market reaction, background)
ISTANBUL, Aug 21 (Reuters) - Turkey's central bank said on Wednesday it would hold daily forex-selling auctions of a minimum $100 million as a further tightening step to shore up the weak lira.
The announcement came as the lira hit a new record low against the dollar on Wednesday, even after the central bank unexpectedly raised its overnight lending rate for a second straight month on Tuesday in an attempt to support the currency.
The lira, along with other emerging market currencies, is being hammered by worries that the U.S. Federal Reserve will soon start to reduce its stimulus programme. Turkey's gaping current account deficit leaves it particularly vulnerable to capital outflows.
Until now the central bank has not sold foreign exchange on days when it implements additional tightening by not holding its regular one-week repo auctions.
"In line with the strategy outlined in the Monetary Policy Committee Meeting of 20 August 2013, the additional monetary policy tightening will continue to be implemented every day until further notice," Governor Erdem Basci said in a statement.
"Starting from today, a forex sale auction of a minimum $100 million will be held during additional tightening days at 16:30 p.m. (1330 GMT)," the statement said.
The lira firmed to 1.9575 against the dollar after the statement from 1.9640 earlier. Against its dollar/euro basket it rebounded to 2.2876 against the dollar from a record low of 2.2960 earlier in the day.
On Tuesday, the bank lifted its lending rate by 50 basis points to 7.75 percent, keeping its one-week repo policy rate at 4.50 percent and its overnight borrowing rate at 3.50 percent.
Growing expectations that the U.S. Federal Reserve may soon start tapering its stimulus programme has hit appetite for emerging market assets. Much of the liquidity unleashed by the programme had headed into higher-yielding emerging markets and markets fear those capital flows could be reversed when U.S. stimulus is reduced.
Turkey is heavily dependent on foreign inflows to finance its current account deficit, which at around 7.1 percent of its output is its main economic weakness.
(Writing by Daren Butler and Seda Sezer; Editing by Nick Tattersall and Susan Fenton)