Turkey intervenes in currency markets in attempt to stem lira plunge

Turkey intervenes in currency markets in attempt to stem lira plunge

The Turkish lira rebounded strongly Wednesday as the central bank said it had intervened due to “unhealthy” market prices.

The Central Bank of the Republic of Turkey (CBRT) said in a statement it “directly” intervened in the market “via selling transactions due to unhealthy price formations in exchange rates.”

The lira, which had earlier weakened as much as 3.3% to 13.87 against the U.S. dollar, gained 6.27%, reaching 12.65 against the greenback before it pared gains. It had dropped to an all-time low of 14.05 on Tuesday.

The central bank made its last direct foreign exchange intervention in January 2014 when it sold around $3.15 billion, Daily Sabah reported.

The central bank “can make the necessary intervention if that’s needed,” President Recep Tayyip Erdogan said in Ankara on Wednesday, speaking to a group of reporters after addressing his ruling Justice and Development Party’s (AK Party) lawmakers in parliament.

The intervention took place in both spot and futures markets. The bank said it had started to conduct transactions at the Borsa Istanbul Derivatives Market (VIOP).

The bank last month warned it was observing unhealthy price formations in forex markets that are “unrealistic and completely detached from economic fundamentals."

Erdogan blamed the depreciation in the lira on games he said were being played on foreign exchange and interest rates. He on Wednesday reiterated his stance and defended the recent monetary easing, stressing that he will never support high interest rates. He added that he understood public concerns over the volatility in exchange rates.

Since September, the CBRT has cut its benchmark policy rate – the one-week repo rate – by 400 basis points to 15% and signaled more easing would come before the end of the year.

On the other hand, the annual inflation rate rose to 19.89% year-on-year in October. November inflation data will be released on Friday and several surveys forecast that it will exceed 20%.

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