Turkish Central Bank seeks to ease pressure on lira

ISTANBUL - Reuters

Turkey’s Central Bank headquarters located in the capital Ankara is seen in this file photo. The bank said yesterday it would hold one-off forex auctions of at least $150 million if needed, in a bid to keep interest rates low without weakening the currency. The dollar was close to 1.970 liras level before day-end. REUTERS photo

Turkey’s Central Bank shifted its intervention strategy toward the inexorable rise of the dollar to a more consolidated approach but failed to stop the U.S. currency from breaking another record.

The bank has tried to stop the rise of the dollar, which has gained upward momentum after the U.S. Federal Reserve (FED) said it might gradually withdraw from its asset purchase program, by organizing several intra-day forex sale auctions.

In a statement released yesterday, the bank said it would hold only one sale which would amount to at least $150 million on the days in which funding was provided from the policy rate.

Right after the announcement it sold $150 million in a intra-day auction, collecting $442 million offers.
However, the dollar rose to 1,9580 Turkish liras, which its new all-time high few hours after the intervention.

The Turkish currency has lost almost 5 percent against the dollar in a week, making it one of the most depreciating currencies against the dollar.

Turkish assets have been volatile since the end of May, when anti-government protests flared up, unnerving investors already worried by an expected slowdown in the flow of cheap money from major economies including the United States.

“In line with the Monetary Policy Committee decision taken on 18 June, the composition of the liquidity provided by the Central Bank will be gradually shifted from net foreign assets to net domestic assets until the next Monetary Policy Committee meeting,” the bank said, explaining the decision.

The bank also returned back to normal by holding a 4.5 billion worth repo auction after skipping its fixed-rate repo auction for three consecutive days.The bank skipped the auctions within its program of implementing short-term additional monetary tightening to counter excessive forex market volatility, as it said after the June 18 meeting. Repo, or repurchase, auctions are a way for central banks to increase liquidly into the system by selling securities with the promise to buy them back later. They usually help weaken a currency.

Gold slide

Gold fell 1 percent yesterday, extending last week’s 7 percent decline, hurt by a stronger dollar amid Fed worries.

The metal fell closer to a three-year low on investor pessimism following the sharp sell-off last week, triggered when the Fed said it would cut back its monetary easing by mid-2014. Given that gold pays no interest, the rise in returns from U.S. bonds and other markets is seen as a negative signal.