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.
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.
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 Brussels Schools, Metro Reopen Under Heavy Guard

City remains under the highest threat alert level due to what authorities have described as a 'serious and imminent' threat of attack

Video Debt-ridden Refugees Await Onslaught of Lebanese Winter

Aid agencies are attempting to reduce potentially devastating consequences of freezing conditions and snowstorms that killed eight last year, including three Syrian refugees

Americans Think About Strange Stuff at Thanksgiving

Millions of Americans are celebrating Thanksgiving, but they’re not necessarily thinking about turkey and stuffing

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
After Paris Attacks, France Steps Up Fight Against ISi
November 24, 2015 3:04 AM
The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video After Paris Attacks, France Steps Up Fight Against IS

The November 13 Paris attacks have drawn increased attention to Syria, where many of the suspected perpetrators are said to have received training. French President Francois Hollande is working to build a broad international coalition to defeat Islamic State in Syria and in Iraq. Zlatica Hoke reports.

Video US, Cambodian Navies Pair Up in Gulf of Thailand

The U.S. Navy has deployed one of its newest and most advanced ships to Cambodia to conduct joint training drills in the Gulf of Thailand. Riding hull-to-hull with Cambodian ships, the seamen of the USS Fort Worth are executing joint-training drills that will help build relations in Southeast Asia. David Boyle reports for VOA from Preah Sihanouk province.

Video Americans Sharpen Focus on Terrorism

Washington will be quieter than usual this week due to the Thanksgiving holiday, even as Americans across the nation register heightened concerns over possible terrorist threats. VOA’s Michael Bowman reports new polling data from ABC News and the Washington Post newspaper show an electorate increasingly focused on security issues after the deadly Islamic State attacks in Paris.

Video World Leaders Head to Paris for Climate Deal

Heads of state from nearly 80 countries are heading to Paris (November 30-December 11) to craft a global climate change agreement. The new accord will replace the Kyoto Protocol on Climate Change that expired in 2012.

Video Uncertain Future for Syrian Refugee Resettlement in Illinois

For the trickle of Syrian refugees finding new homes in the Midwest city of Chicago, the call to end resettlement in many U.S. states is adding another dimension to their long journey fleeing war. Organizations working to help them integrate say the backlash since the Paris attacks is both harming and helping their efforts to provide refugees sanctuary. VOA's Kane Farabaugh reports.

Video Creating Physical Virtual Reality With Tiny Drones

As many computer gamers know, virtual reality is a three-dimensional picture, projected inside special googles. It can fool your brain into thinking the computer world is the real world. But If you try to touch it, it’s not there. Now Canadian researchers say it may be possible to create a physical virtual reality using tiny drones. VOA’s George Putic reports.

Video New American Indian Village Takes Visitors Back in Time

There is precious little opportunity to experience what life was like in the United States before its colonization by European settlers. Now, an American Indian village built in a park outside Washington is taking visitors back in time to experience the way of life of America's indigenous people. Carol Pearson narrates this report from VOA's June Soh.

Video Even With Hometown Liberated, Yazidi Refugees Fear Return

While the northern Iraqi town of Sinjar has been liberated from Islamic State forces, it's not clear whether Yazidi residents who fled the militants will now return home. VOA’s Mahmut Bozarslan talked with Yazidis, a religious and ethnic minority, at a Turkish refugee camp in Diyarbakır. Robert Raffaele narrates his report.

Video Nairobi Tailors Make Pope Francis’ Vestments

To ensure the pope is properly attired during his visit, the Kenya Conference of Catholic Bishops asked the Dolly Craft Sewing Project in the Nairobi slum of Kangemi to make the pope's vestments, the garments he will wear during the various ceremonies. Jill Craig reports.

Video Cross-Border Terrorism Puts Europe’s Passport-Free Travel in Doubt

The fallout from the Islamic State terror attacks in Paris has put the future of Europe’s passport-free travel area, known as the "Schengen Zone," in doubt. Several of the perpetrators were known to intelligence agencies, but were not intercepted. Henry Ridgwell reports from London European ministers are to hold an emergency meeting Friday in Brussels to look at ways of improving security.

Video El Niño Brings Unexpected Fish From Mexico to California

Fish in an unexpected spectrum of sizes, shapes and colors are moving north, through El Niño's warm currents from Mexican waters to the Pacific Ocean off California’s coast. El Nino is the periodic warming of the eastern and central Pacific Ocean. As Faiza Elmasry tells us, this phenomenon thrills scientists and gives anglers the chance of a once-in-a-lifetime big catch. Faith Lapidus narrates.

Video Terrorism in Many Forms Continues to Plague Africa

While the world's attention is on Paris in the wake of Friday night's deadly attacks, terrorism from various sides remains a looming threat in many African countries. Nigerian cities have been targeted this week by attacks many believe were staged by the violent Islamist group Boko Haram. In addition, residents in many regions are forced to flee their homes as they are terrorized by armed militias. Zlatica Hoke reports.

Video Study: Underage Marriage Rate Higher for Females in Pakistan

While attitudes about the societal role of females in Pakistan are evolving, research by child advocacy group Plan International suggests that underage marriage of girls remains a particularly big issue in the country. VOA’s Ayesha Tanzeem reports how such marriages leads to further social problems.

VOA Blogs

World Currencies


Rates may not be current.