News / Economy

Turkish Central Bank Spends Heavily Again to Stabilize Lira

FILE - People withdraw Turkish liras from automatic teller machines in Istanbul, October 17, 2011. FILE - People withdraw Turkish liras from automatic teller machines in Istanbul, October 17, 2011.
x
FILE - People withdraw Turkish liras from automatic teller machines in Istanbul, October 17, 2011.
FILE - People withdraw Turkish liras from automatic teller machines in Istanbul, October 17, 2011.
Reuters
Turkey's central bank sold $1.3 billion on Wednesday to prop up the lira as foreign capital that had flooded in earlier this year continued to flee on fears over U.S. monetary policy and domestic political uncertainties.
 
The move was the second heavy day of intervention this week after a record $2.25 billion was thrown at the lira on Monday, bringing total sales for the year to $6.2 billion. The lira has fallen almost nine percent against the dollar since May.
 
The credit rating agency Fitch said any prolonged unrest, following two weeks of protests against Prime Minister Tayyip Erdogan last month, could put at risk the sovereign investment grade rating that Turkey achieved in November.
 
Turkey's banking watchdog, reflecting concern over the recent strong market movements, said it had launched an investigation into this week's foreign exchange deals.
 
Erdogan has made clear his opposition to interest rate rises to stem currency outflows, but analysts said foreign exchange intervention alone would have only a limited effect.
 
Turkey's total net reserves, according to bankers' calculations, are now below $40 billion. HSBC strategist Murat Toprak estimated that Turkey could afford to spend about $10-$13 billion of its reserves in defense of the currency.
 
“The market is questioning what is going to be the monetary policy option. Their next move should be to hike interest rates, and I expect them to hike the lending rate, the upper end of the corridor,” he said. “But they always use the interest rate tool as the last resort, which they use when they have nothing else left.”
 
Emerging currencies have plunged to multi-year or even record lows against the resurgent dollar. This is forcing many central banks to rally to their defense on fears that currency weakness will lead to a wholesale exodus of foreign capital.
 
Rapid growth
 
Turkey, whose economy has grown rapidly since Erdogan came to power 10 years ago, seems to have taken the heaviest hit, undermined by unprecedented protests last month that Erdogan, in the eyes of markets and critics at home, handled badly.
 
The lira weakened to a record low of 1.9737 per dollar early on Monday before the central bank stepped in. Although the record intervention lifted the currency almost two percent through Tuesday, renewed pressure saw it slide back to 1.9590 per dollar by late Wednesday, even after fresh central bank action.
 
“At the moment they are just trying to stabilize the currency but I don't think it will be effective,” said Claire Dissaux, head of global economics and strategy at Millennium Global Investments in London. “They are intervening, but there is pressure on them to raise interest rates."
 
“If you look at their current account deficit and the amount of [maturing] short-term debt and amortizations as a share of currency reserves and compare with other emerging markets, Turkey is the worst,” she added.
 
However, Erdogan, keen to boost sluggish growth, has made his opposition to rate rises clear, and rattled markets last month, at the height of the protests, by accusing an “interest rate lobby” of conspiring with foreigners to hurt the economy.
 
This reference was taken by markets as marking a possible change in Erdogan's favorable stance towards business.
 
Senior banking sources told Reuters the BDDK banking watchdog was seeking details of currency transactions made on Monday and Tuesday.
 
They said the BDDK had written to banks on Tuesday asking them to detail auction bids and explain the purpose of their foreign currency buying.
 
Global sentiment

 
“They sought all information on when forex was bought, at what level and by whom on all transactions of more than $2 million,” said one bank executive familiar with the matter.
 
The regulator told Reuters in a statement that this was routine practice.
 
Marco Santamaria, Emerging Market Portfolio Manager at AllianceBernstein in New York, said the Turkish central bank was under severe pressure.
 
“The central bank is losing reserves, they have to finance a substantial current account deficit, and they are dependent on portfolio flows. Now global sentiment has changed and the domestic situation is not helping at all,” he said.
 
“On top of that, the government is saber-rattling about the 'interest rate lobby' and, as a result, the central bank is constrained in its ability to hike rates aggressively.” he added.
 
Two-year Turkish local debt yields were up more than 100 basis points at one time, smashing through the key nine percent barrier to their highest level in over a year. Turkey's hard currency debt spread widened 11 basis points on JP Morgan's EMBI Global index, to 272 over U.S. Treasuries.
 
Turkish stocks dropped more than two percent to 2-1/2-week lows before trimming some losses to stand 1.7 percent down on the day.
 
The Fitch ratings agency said increased expectations of a U.S. Federal Reserve exit from asset-buying quantitative easing, coupled with the protests, had exposed Turkey's chief weakness.
 
“A current account deficit equivalent to 6.8 percent of GDP, over 90 percent of which is funded by portfolio investors. Turkish asset prices have come under strong downward pressure, precipitating a sharp fall in the exchange rate and declining international reserves.
 
“Prolonged social unrest, poorly handled, could deter tourism, exacerbate short-term capital outflows, drive up inflation and damage economic growth, potentially putting Turkey's sovereign rating at risk.”

You May Like

Australia Knights Prince Philip, Sparking National Outrage

Abbott's surprise reintroduction of knights and dames in the country's honors system last year drew criticism that he was out of touch with national sentiment More

SAG Award Boosts 'Birdman' Oscar Hopes

Individual acting Oscars appear to be sewn up: SAG awards went to artists who won Golden Globes: Julianne Moore, Eddie Redmayne, Patricia Arquette, J.K. Simmons More

Katy Perry Lights Way for Super Bowl's Girl Power Moment

Pop star's selection to headline US football championship's halftime show extends NFL's trend of selecting artists who appeal to younger viewers More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Zoo Animals Show Their Artistic Sidesi
X
June Soh
January 23, 2015 10:03 PM
The pursuit of happiness is so important, America's founding fathers put it in the Declaration of Independence. Any zookeeper will tell you animals need enrichment, just like humans do. So painting, and even music, are part of the Smithsonian National Zoo's program to keep the animals happy. VOA’s June Soh met some animal artists at the zoo in Washington. Faith Lapidus narrates.
Video

Video Zoo Animals Show Their Artistic Sides

The pursuit of happiness is so important, America's founding fathers put it in the Declaration of Independence. Any zookeeper will tell you animals need enrichment, just like humans do. So painting, and even music, are part of the Smithsonian National Zoo's program to keep the animals happy. VOA’s June Soh met some animal artists at the zoo in Washington. Faith Lapidus narrates.
Video

Video Progress, Some Areas of Disagreement in Cuba Talks

U.S. and Cuban officials are reporting progress from initial talks in Havana on re-establishing diplomatic ties. U.S. Assistant Secretary of State (for Western Hemisphere Affairs) Roberta Jacobson said while there was agreement on a broad range of issues, there also are some “profound disagreements” between Washington and Havana. VOA State Department correspondent Pam Dockins has the story.
Video

Video Worldwide Photo Workshops Empower Youth

Last September, 20 young adults from South Sudan took part in a National Geographic Photo Camp. They are among hundreds of students from around the world who have learned how to use a camera to tell the stories of the people in their communities through the powerful medium of photography. Three camp participants talked about their experiences recently on a visit to Washington. VOA’s Julie Taboh reports.
Video

Video US, Japan Offer Lessons as Eurozone Launches Huge Stimulus

The Euro currency has fallen sharply after the European Central Bank announced a bigger-than-expected $67 billion-a-month quantitative easing program Thursday - commonly seen as a form of printing new money. Henry Ridgwell reports for VOA from London on whether the move might rescue the eurozone economy -- and what lessons have been learned from similar programs around the world.
Video

Video Nigerian Elections Pose Concern of Potential Conflict in 'Middle Belt'

Nigeria’s north-central state of Kaduna has long been the site of fighting between Muslims and Christians as well as between people of different ethnic groups. As the February elections approach, community and religious leaders are making plans they hope will keep the streets calm after results are announced. Chris Stein reports from the state capital, Kaduna.
Video

Video As Viewership Drops, Obama Puts His Message on YouTube

Ratings reports show President Obama’s State of the Union address this week drew the lowest number of viewers for this annual speech in 15 years. White House officials anticipated this, and the president has decided to take a non-traditional approach to getting his message out. VOA White House correspondent Luis Ramirez reports.
Video

Video S. Korean Businesses Want to End Trade Restrictions With North

Business leaders in South Korea are calling for President Park Geun-hye to ease trade restrictions with North Korea that were put in place in 2010 after the sinking of a South Korean warship.Pro-business groups argue that expanding trade and investment is not only good for business, it is also good for long-term regional peace and security. VOA’s Brian Padden reports.
Video

Video US Marching Bands Grow Into a Show of Their Own

The 2014 Super Bowl halftime show was the most-watched in history - attracting an estimated 115 million viewers. That event featured pop star Bruno Mars. But the halftime show tradition started with marching bands, which still dominate the entertainment at U.S. high school and college American football games. But as Enming Liu reports in this story narrated by Adrianna Zhang, marching bands have grown into a show of their own.

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

All About America

AppleAndroid

World Currencies

EUR
USD
0.8930
JPY
USD
117.98
GBP
USD
0.6673
CAD
USD
1.2445
INR
USD
61.498

Rates may not be current.