Turkey burns reserves as Fed fears push lira to record lows

The lira hit an all-time low of 2.3 against its dollar/euro basket, and against the dollar it weakened to 1.9628 from 1.9495 late on Tuesday

Turkey burns reserves as Fed fears push lira to record lows

World Bulletin/News Desk   

The Turkish Central Bank is stepping up its injection of US dollars into markets to shore up the lira against the greenback after the domestic currency fell to record lows on Wednesday. The bank announced on Wednesday that it would inject “at least” $100 million into markets daily to stem depreciation of the lira.

The lira hit an all-time low of 2.3 against its dollar/euro basket, and against the dollar it weakened to 1.9628 from 1.9495 late on Tuesday, with investors brushing aside central bank efforts to shore up the currency in trade dominated by concerns about cuts to the US monetary stimulus program.

The central bank has burned through more than $7 billion, about 15 percent of estimated disposable reserves, so far this year in an effort to defend the lira.

An expected tailing off of extraordinary US money printing has been prompting selloffs in emerging markets, with the domestic currencies of Turkey and India suffering the worst.

In a written statement on Tuesday, central bank governor Erdem Başçı said they have indefinitely switched to a new scheme where the bank will sell “at least” $100 million in foreign currency auctions per day. The bank said in July that it had switched to extra monetary tightening. It said on Tuesday it would not inject cash to markets on Wednesday. Market analysts argued the tightening maneuver was unnecessary due to Fed pressures.

“We will maintain our monetary tightening policy until a change is made,” Başçı said on Wednesday. The bank will sell not less than $100 million each day at 4:30 p.m. İstanbul time. This will continue until a new decision is made.

The bank repeatedly stated in the past that it would take further monetary tightening steps to support the lira if needed.

The lira's decline follows a central bank move to raise interest rates a half point to bolster the currency. The Turkish central bank on Tuesday raised its lending rates -- the price at which it funds the market -- by half a point to 7.75 percent but said this higher rate would apply only on special days. The move was deemed by markets to be an inadequate policy response given the scale of the challenges facing emerging markets.

Turkish shares and bonds also suffered ahead of the release later on Wednesday of minutes from the US Federal Reserve's July meeting, which may shed more light on when it will scale back its bond purchases.

Growing expectations that the process will start soon have hurt investor appetite for emerging markets in general, with Turkey's large current account deficit (CAD) leaving it particularly vulnerable.

The main share index Bourse İstanbul (BIST) was down 3.12 percent at 69,952, lowest since November 2012. The yield on the 10-year bond rose to 9.56 percent, from Tuesday's close of 9.36. Investors are looking for further signs Turkey's central bank -- which previously said it would not sell foreign currency on additional monetary tightening days -- is committed to keeping the lira steady and inflation under control. “As speculated in the media, possible gas price hikes followed by electricity due to currency losses encountered by the state importer is not good news for inflation,” a note from Oyak Securities said.

“As the lira is still losing ground, inflation will continue to be in the spotlight.”

Güncelleme Tarihi: 22 Ağustos 2013, 11:01
YORUM EKLE