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

Lion Cecil's Killing Sparks 'Canned Hunting' Debate in S. Africa

Conservationists believe incident, which triggered worldwide outrage, will reshape debate about practice in which hunters are allowed to target animals bred for hunting More

US Urges Taliban to Stay With Afghan Peace Talks

Top US Afghan diplomat also meets with Pakistani, Afghan officials following news of Mullah Omar's death More

Environmentalists Issue Warning on Mekong Biodiversity

Scientists say decades of economic development, hydropower-dam construction, lax law enforcement and trafficking have taken their toll More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Astronauts Train Underwater for Deep Space Missionsi
|| 0:00:00
...    
🔇
X
George Putic
July 30, 2015 8:59 PM
Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Astronauts Train Underwater for Deep Space Missions

Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Civil Rights Leaders Struggled to Achieve Voting Rights Act

Fifty years ago, lawmakers approved, and U.S. President Lyndon Johnson signed, the Voting Rights Act of 1965. The measure outlawed racial discrimination in voting, giving millions of blacks in many parts of the southern United States federal enforcement of the right to vote. Correspondent Chris Simkins introduces us to some civil rights leaders who were on the front lines in the struggle for voting rights.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder Reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.
Video

Video 'Metal Muscles' Flex a New Bionic Hand

Artificial limbs, including the most complex of them – the human hand – are getting more life-like and useful due to constant advances in tiny hydraulic, pneumatic and electric motors called actuators. But now, as VOA’s George Putic reports, scientists in Germany say the future of the prosthetic hand may lie not in motors but in wires that can ‘remember’ their shape.
Video

Video Russia Accused of Abusing Interpol to Pursue Opponents

A British pro-democracy group has accused Russia of abusing the global law enforcement agency Interpol by requesting the arrest and extradition of political opponents. A new report by the group notes such requests can mean the accused are unable to travel and are often unable to open bank accounts. VOA's Henry Ridgwell reports.
Video

Video 'Positive Atmosphere' Points Toward TPP Trade Deal in Hawaii

Talks on a major new trade agreement among 12 Pacific Rim nations are said to be nearing completion in Hawaii. Some trade experts say the "positive atmosphere" at the discussions could mean a deal is within reach, but there is still hard bargaining to be done over many issues and products, including U.S. drugs and Japanese rice. VOA's Jim Randle reports.
Video

Video Genome Initiative Urgently Moves to Freeze DNA Before Species Go Extinct

Earth is in the midst of its sixth mass extinction. The last such event was caused by an asteroid 66 million years ago. It killed off the dinosaurs and practically everything else. So scientists are in a race against time to classify the estimated 11 million species alive today. So far only 2 million are described by science, and researchers are worried many will disappear before they even have a name. VOA’s Rosanne Skirble reports.
Video

Video Scientists: One-Dose Malaria Cure is Possible

Scientists have long been trying to develop an effective protection and cure for malaria - one of the deadliest diseases that affects people in tropical areas, especially children. As the World Health Organization announces plans to begin clinical trials of a promising new vaccine, scientists in South Africa report that they too are at an important threshold. George Putic reports, they are testing a compound that could be a single-dose cure for malaria.
Video

Video 'New York' Magazine Features 35 Cosby Accusers

The latest issue of 'New York' magazine features 35 women who say they were drugged and raped by film and television celebrity Bill Cosby. The women are aged from 44 to 80 and come from different walks of life and races. The magazine interviewed each of them separately, but Zlatica Hoke reports their stories are similar.
Video

Video US Calls Fight Against Human Trafficking a Must Win

The United States is promising not to give up its fight against what Secretary of State John Kerry calls the “scourge” of modern slavery. Officials released the country’s annual human trafficking report Monday – a report that’s being met with some criticism. VOA’s National Security correspondent Jeff Seldin has more from the State Department.
Video

Video Washington DC Underground Streetcar Station to Become Arts Venue

Abandoned more than 50 years ago, the underground streetcar station in Washington D.C.’s historic DuPont Circle district is about to be reborn. The plan calls for turning the spacious underground platforms - once meant to be a transportation hub, - into a unique space for art exhibitions, presentations, concerts and even a film set. Roman Mamonov has more from beneath the streets of the U.S. capital. Joy Wagner narrates his report.
Video

Video Europe’s Twin Crises Collide in Greece as Migrant Numbers Soar

Greece has replaced Italy as the main gateway for migrants into Europe, with more than 100,000 arrivals in the first six months of 2015. Many want to move further into Europe and escape Greece’s economic crisis, but they face widespread dangers on the journey overland through the Balkans. VOA's Henry Ridgwell reports.
Video

Video Stink Intensifies as Lebanon’s Trash Crisis Continues

After the closure of a major rubbish dump a week ago, the streets of Beirut are filling up with trash. Having failed to draw up a plan B, politicians are struggling to deal with the problem. John Owens has more for VOA from Beirut.
Video

Video Paris Rolls Out Blueprint to Fight Climate Change

A U.N. climate conference in December aims to produce an ambitious agreement to fight heat-trapping greenhouse gases. But many local governments are not waiting, and have drafted their own climate action plans. That’s the case with Paris — which is getting special attention, since it’s hosting the climate summit. Lisa Bryant takes a look for VOA at the transformation of the French capital into an eco-city.

VOA Blogs

World Currencies

EUR
USD
0.9118
JPY
USD
124.31
GBP
USD
0.6420
CAD
USD
1.3048
INR
USD
64.136

Rates may not be current.