Turkey: Central Bank to Sell U.S. Dollars 1,35 billion
Turkey’s central bank Wednesday moved to step up efforts to stem an accelerating slide in the lira, which hit a record low this week as investors flee risky assets.
The central bank said it plans to sell as much as $1.35 billion at its regular dollar auction.
The news sent the Turkish lira higher against the dollar. At 0940 GMT, the lira was at TRY1.8725 against the dollar, from TRY1.8773 in Wednesday early trading.
The size of Wednesday’s auction is far above the average seen in recent auctions. The central bank started selling dollars in August to shore up the lira. It stepped in more forcefully for the first time on Sept. 20, when it sold $350 million, the second-biggest amount ever.
The move took markets by surprise, but even though it succeeded in pushing the lira higher, economists say more may be needed.
Just before the auction, the central bank also cut foreign exchange reserve requirements to free up liquidity and support the lira.
“It is difficult to stop depreciation of the lira currently, but the central bank’s moves are positive and appropriate,” said Sengul Dagdeviren, chief economist at ING Bank Turkey in Istanbul.
Others cautioned that the central bank won’t be able to keep up selling such vast amounts of dollars for long.
The policy isn’t sustainable because the country simply doesn’t have big enough reserves to keep selling dollars at this pace, said Neil Shearing at Capital Economics in London.
According to the most recent data, Turkey’s foreign reserves were at $84.752 billion in the week to Sept. 23.
Efforts to stem the slide in the lira intensified since central bank Governor Erdem Basci said Friday that further lira weakness would be unwelcome.
Turkey has been bleeding capital as investors are pulling out of emerging markets, which are no longer seen as immune to a deteriorating global growth outlook.
This is a concern because Turkey’s growth has been largely financed by short-term portfolio investments. Rampant consumer demand, financed by bank loans and credit card debt, fueled Turkey’s impressive growth this year.
More recently though, the economic outlook has darkened. The International Monetary Fund lowered its growth forecast for Turkey, predicting it will slow down to just 2.2% next year.
This leaves the central bank with a dilemma. The darkening growth outlook and accelerating inflation call for a rate cut, but lower rates render the lira even less attractive for foreign investors.
By Yeliz Candemir
Oct. 5, 2011
SOURCE: MARKET WATCH
