Turkish Central Bank lets lira float

PanARMENIAN.Net - The Turkish lira rose back to 1.81 levels after hitting all-time low against the dollar as the central bank stepped in to curb the depreciation of the currency.



The Turkish lira currency fell more than 1 percent to hit historic lows over 1.82 levels against the dollar on Monday. The lira strengthened back to 1.81 levels after the central bank said it will re-launch daily dollar selling auctions from Tuesday.  

 



The Turkish lira also plunged last week by the most in almost five months as risk aversion sparked by concerns in global markets continued to lead investors to seek safer ports. 

 



The Turkish Economy Minister said on Monday that the weakening lira was due to the impact of the global crisis. "There is general shift away from risk which is strengthening the dollar in every corner of the globe," Mehmet Simsek was quoted as saying by Dogan News Agency.  

 



The lira, having lost some 25 percent against dollar in 2008, has further weakened more 15 percent since the beginning of 2009. 

 



Analysts say the Turkish Central Bank's reactions are going to be important during this period to calm the rising money markets. "The bank can lower required reserve ratio for foreign currency accounts. It did this before," Murat Salar, an economist at Istanbul-based A Brokerage, told hurriyet.com.tr.

 



The bank is unlikely to employ any other methods to intervene, Salar said adding that the current foreign currency level makes the long-awaited loan deal with the International Monetary Fund (IMF) more important.

 



The currency's weakening position is likely to deepen concerns about Turkey's economy as the government continues to hold out against finalizing a new loan arrangement with IMF, saying some conditions attached to the loan are unacceptable. Talks for a possible new loan were suspended in February. 

 



Prime Minister Tayyip Erdogan said on March 2 that Turkey does not need loans from the IMF and may not conclude talks on a possible economic agreement until after the local elections on March 29. The country, which is seeking to avert a recession, has external financing needs of about $30 billion this year, according to the central bank's estimation. 

 



Turkey's gross domestic product expanded 0.5 percent in the third quarter of the year, its slowest pace in six years, after growing 2.3 percent in the second three months. 





Problems which have occurred in international credit markets caused liquidity problems in several countries as of the second half of September 2008 and the bank has taken some measures to diminish negative impacts on the credit mechanism in the country, the bank said in the statement.        



The auctions will start on Tuesday and the daily volume to be sold will be $50 million. The amount could rise depending on market conditions, the statement also said.



The statement came after lira hit a record low of 1.82 against the dollar, in addition to the rapid slide experienced last week.



"Moreover, if the dollar selling auctions will not be able to meet the liquidity need in the foreign exchange markets and if high volatility is observed as a result of speculative moves that may result from the reduction in liquidity despite the auctions, then the Central Bank could intervene by introducing direct dollar selling," the bank added in the statement. 



The Turkish Central Bank earlier took a series of measures when the liquidity squeeze experienced in the markets was felt more intensely in the last quarter of 2008. At that time, the bank resumed the foreign exchange depot market, in which it is the financial intermediary and regulator, and doubled the borrowing limit in this market.

 

The central bank also said that the decision to provide liquidity loans to banks, up to double their total equity, was considered as plan B.



Earlier, on March 3, 2009, the Central Bank of Armenia announced return to floating rate policy. According to experts, the dram-to-dollar rate is expected to be AMD360-380/$1.