Turkey’s central bank intervenes again to support the beleaguered lira | Business and Economics News

For the second time this week, Turkey’s central bank plunged into its precious foreign exchange reserves and sold dollars to prop up the lira.

The Turkish lira approached a record low, prompting Turkey’s central bank to intervene for the second time this week in foreign exchange markets and sell dollars to prop up the embattled currency.

The exchange rate intervention occurred on Friday after ratings agency Fitch revised Turkey’s outlook from “negative” to “stable” due to risks from recent interest rate cuts.

Economists have widely criticized President Recep Tayyip Erdogan’s policy of cutting interest rates as reckless, and warned that the central bank cannot properly defend the currency given its depleted reserves.

The lira fell to the level of 13.89 against the US dollar before stabilizing to 13.37 with the intervention of the central bank. At 10:39 GMT, it settled at 13.65 per dollar.

The lira has lost about 45 percent of its value against the dollar this year.

The currency touched a record high of 14 on Tuesday, a dramatic drop from February when half the lira was needed to buy one dollar.

The central bank began its interventions the next day and the currency has since approached 13.9 three times before rising suddenly, indicating that the authorities are not ready to let it pass until 14.

“The impact of the intervention is rather negligible because the markets know that reserves are melting,” said Ipek Ozkardskaya, chief analyst at Swissquote.

“High inflation calls for a price adjustment. Selling reserves weakens the central bank’s hand, and should have an increasingly limited effect on the currency’s movement forward.”

Data on Friday showed annual inflation jumped more-than-expected in November to a three-year high of 21.31 percent, further exposing the risks of recent aggressive rate cuts.

Erdogan has repeatedly defended low-price economic policy over the past two weeks. The government, regulators and banks have gathered around what the Turkish president calls a new economic model.

Fitch described the central bank’s easing, which began in September even when inflation was accelerating, as premature and said it caused a deterioration in domestic confidence that was reflected in a sharp depreciation of the currency.

Maintaining an extremely negative real policy rate may further undermine domestic confidence, increase risks to financial stability, for example, if depositor confidence is shaken, and potentially jeopardize the yet flexible access of banks and companies to financing, Fitch said in its report. External” ratings report.

Since September, the central bank has cut the interest rate by four percentage points to 15 percent. In investor calls on Thursday, the bank’s governor indicated that easing was likely to pause in January after another rate cut this month.

Source link

Andrew Naughtie

News reporter and author at @websalespromo