ISTANBUL: The beleaguered Turkish lira recovered from all time lows Thursday after the central bank intervened in foreign exchange markets directly for the first time in two years.
The lira tumbled to 3.1061 to the euro and 2.2909 to the dollar in early trade but recovered to 3.0994 and 2.2688 by midday after the central bank action.
The currency has plunged about 10 percent since mid-December – hitting new lows almost daily this year – battered by the political turmoil and concerns about its gaping currency account deficit.
“It is the first time since January, 2012 that the central bank has resorted to direct intervention in the market by directly calling banks to sell currency,” Deniz Cicek, an economist at Turkey’s Finansbank, said.
“Thus, the bank aims to control the exchange rate.”
The independent bank, under pressure from the government not to raise interest rates to sustain growth that has sharply dropped in recent years, has so far sold dollars through auctions.
The Istanbul stock market meanwhile was down 0.63 percent to 66,940.69 points.
The central bank has so far refrained from hiking interest rates to defend the lira, although market analysts said it had given itself room for maneuver to tighten monetary policy on certain days.
The Turkish treasury Wednesday sold around $2.5 billion debt through the issue of a 10-year dollar denominated eurobond, the first of the year.
Turkey, like other emerging markets, is vulnerable to the U.S. Federal Reserve’s plans to taper its monetary stimulus as it reduces access to cheaper funds to cover its account deficit, currently at over 7.0 percent of gross domestic product.
Analysts are forecasting a further slide in the lira because of the political tensions and tepid economic growth, with some suggesting a level of 2.35 to the dollar over 12 months.
The government has insisted that its growth target of 4 percent for this year remains intact, but the European Bank for Reconstruction and Development Tuesday cut its forecast to 3.3 percent.
Turkey is rated at investment grade Baa3 by Moody’s Investors Service, BB+ by Standard & Poor’s and BBB- by Fitch Ratings.