Central Bank sells $3.6 billion in four days

ANKARA / ISTANBUL

The Turkish Central Bank had sold a total of $3.6 billion dollars since the beginning of the week to hold up the lira, but it is very questionable whether this policy is sustainable amid considerable uncertainties in global economy, despite the U.S. Federal Reserve’s temporary delay in ending the liquidity party to global markets, specially emerging markets.

The Turkish Lira hit a record low of 1.9737 against the dollar on July 8, like many other emerging currencies, such as the Indian Rupee. The lira rebounded after the Central Bank sold a record $2.25 billion of hard currency, around 5 percent of its net reserves, but the Turkish lira moved only very slightly, still trading at 1.95. The bank then made six dollar auctions totaling $1.35 billion on July 10 just before the FED meeting.

The central bank thus sold around $6.2 billion in one month to defend the lira. Its last such move was in 2011, but it did not auction more than $1.5 billion on that occasion. Following the FED meeting, the lira saw 1.93 against dollar yesterday morning, and then the Central Bank made another auction totaling $50 million.

Emerging markets have been particularly hard hit by the FED’s policy shift. “The central banks have chosen different ways in the emerging markets. The point here is these countries need to consider the net reserves of their central banks while deciding how to hold up their currencies against dollar,” an analyst told the Hürriyet Daily News.

Meanwhile, the lira, which has been supported this week by over $6 billion in Central Bank interventions, trailed the rally, and benchmark Turkish bond yields inched to new one-year highs above 9 percent, as expectations of a rate hike mounted.

The Bank’s “firepower is limited”, Capital Economics economist Neil Shearing told AFP, putting its foreign currency reserves available for buying the lira at about $45 billion.

Foreign capital that had flooded in earlier this year continued to flee on fears over U.S. monetary policy and domestic political uncertainties. The Turkish government has been shaken by countrywide protests for over one month, which Prime Minister Recep Tayyip Erdoğan blamed various groups, including what he called an “interest rate lobby.” On May 16, the Central Bank had cut its main interest rate by half a percentage point to 4.5 percent to boost the slowing economy.