Turkish Central Bank cuts forex deposit rates, lira firms

ISTANBUL - Reuters

The Turkish Central Bank said on March 9 it was cutting its one-week forex deposit interest rates, triggering gains in the lira after a week of sharp declines driven partly by worries over political pressure on the bank.

In the morningof March 9 the lira firmed to 2.5930 against the dollar after the announcement. It hit a record low of 2.6470 late on March 6 and was at 2.6270 in early trade.

The Central Bank stepped in to support the lira after it hit record lows on concern about the future make-up of the government’s economic team and about pressure exerted by President Recep Tayyip Erdoğan on the Central Bank to cut rates.

Analysts said it was the third time the bank, which has been verbally pressured by key political figures and unable to hike rates, has used back-door methods to stem the lira’s decline since last week, after increased its daily forex-selling auction amount and tightened lira liquidity slightly.

BGC Partners chief economist Özgür Altuğ said the bank’s forex deposit facility was used by banks in late 2012 and at that time the rate was much lower.

“Usually, this facility is used in the worst times and we think that seeing the Bank taking some actions against lira depreciation is positive for sentiment,” he added.

The Central Bank said in a statement it was cutting the one-week deposit rate for dollars to 4.5 percent from 7.5 percent in line with global interest rate developments.

It also cut its one-week euro deposit rate to 2.5 percent from 6.5 percent. The changes will take effect today.

Ministers to brief Erdoğan

Undeterred by the market’s negative response to his interference, on March 7 the president told the business community not to profit from the strong dollar.

Prime Minister Ahmet Davutoğlu, Central Bank Governor Erdem Başçı and Deputy Prime Minister Ali Babacan were expected to brief Erdoğan in the coming days, closely watched by markets for whether they would negotiate for a hike in rates.

Turkey’s lira earlier came under slight pressure after data showed industrial output fell in January, underlining the growth worries behind the government pressure on the bank to cut rates.