Turkish central bank intervenes again to protect the pound Business and Economic News

For the second time this week, the Turkish central bank plunged into its precious foreign exchange reserves and sold dollars to promote the lira.

The Turkish lira has approached a record low, prompting the country’s central bank to intervene in exchange markets for the second time this week and sell dollars to protect the currency in conflict.

The exchange rate intervention came on Friday after the rating agency Fitch downgraded Turkey’s forecast to “negative”, from being “stable” to the risks posed by recent interest rate cuts.

Economists have sharply criticized President Tayyip Erdogan’s aggressive policy of slashing the rate, and warned that the central bank could not properly defend its money as its reserves ran out.

The lira weakened to 13.89 against the U.S. dollar before consolidating to 13.37 when the central bank intervened. At 10:39 GMT the dollar was at 13.65.

The pound has lost about 45 percent of its value this year against the U.S. dollar.

The currency hit a record 14 on Tuesday, starting in February when it took half a lira to buy a dollar.

Interventions by the central bank began the next day, and since then the currency has risen threefold to 13.9, before a sudden rally, with authorities not ready to drop to 14.

“The impact of the intervention is relatively small because the markets know that reserves are melting,” said Ipek Ozkardeskaya, a senior Swissquote analyst.

“High inflation requires adjusting rates. The sale of reserves is weakening the hand of the central bank, and it should have a less and less impact as the currency moves forward. ”

Friday’s data showed that annual inflation rose more than expected in November to a three-year high of 21.31 per cent, further revealing the risks of the aggressive rate cut.

Erdogan has repeatedly defended a low-rate economic policy over the past two weeks. The government, regulators and banking associations have joined forces in what the Turkish president calls a new economic model.

Fitch described the central bank’s slowdown – even as inflation began to pick up in September – as early as possible, and said it had caused a deterioration in internal confidence reflected in a significant loss of currency value.

“Maintaining a very negative real policy rate could further undermine internal confidence by increasing risks to financial stability, such as shaking confidence in deposits, and may jeopardize resilient access to external financing for banks and companies so far,” Fitch said. valuation report.

Since September, the central bank has reduced its policy rate by four percentage points to 15 percent. In a call for investors on Thursday, the bank’s governor said the easing of the policy would be suspended in January probably after further rate cuts this month.