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

Multimedia Obama Defends Immigration Action

Obama says with his executive action on immigration, enforcement resources will be focused on 'felons, not families; criminals, not children' More

US-Led Airstrikes in Syria Kill Over 900: Monitoring Group

British-based Syrian Observatory for Human Rights says the toll includes more than 50 civilians, five of them women and eight of them children More

Report: Obama Broadens US Combat Role in Afghanistan

The New York Times says resident Barack Obama has signed a classified order extending the role of US troops in Afghanistan for another year More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
New Skateboard Defies Gravityi
X
November 21, 2014 5:07 AM
A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Gay Evangelicals Argue That Bible Does Not Condemn Homosexuality

More than 30 U.S. states now recognize same-sex marriages, and an increasing number of mainline American churches are blessing them. But evangelical church members- which account for around 30 percent of the U.S. adult population - believe the Bible unequivocally condemns homosexuality. VOA's Jerome Socolovsky reports that gay, lesbian, bisexual and transgender evangelicals are coming out. Backed by a prominent evangelical scholar, they argue that the traditional reading of the bible is wrong.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8050
JPY
USD
117.90
GBP
USD
0.6376
CAD
USD
1.1259
INR
USD
61.655

Rates may not be current.