Turkish central bank intervenes to bolster sinking lira
Erdogan says long-term investors in Turkey 'always win'
The Turkish central bank intervened in the foreign exchange market for the first time in seven years on Wednesday in a bid to bolster the ever-weakening Turkish lira.
After the bank announced it had sold foreign currencies including the US dollar to counter “unhealthy price formations”, the lira surged by as much as 8.5% against the dollar. Earlier in the day it had traded down by more than 3%.
The lira has lost 40% of its value against the global reserve currency in the past month, with foreign investors strongly opposed to President Recep Tayyip Erdogan’s belief that inflation can be tackled by reducing interest rates.
Erdogan’s removal of three central bank governors in less than three years has also made foreign capital increasingly sceptical of the institution’s supposed independence. In the past two months, the central bank has cut its one-week repo rate by 4% to 15%.
Erdogan’s latest comments
Speaking on Tuesday to state broadcaster TRT, the Turkish leader hailed the fact that the Turkish economy is expected to grow by more than 10% by the end of 2021 and pledged to pursue a policy of lower rates until the 2023 election.
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Erdogan said: “We are no longer posting a current account deficit and financing this deficit with external debt, but we are moving towards an economy that gains foreign currency and posting a current account surplus.”
He added: “Our new economic model doesn't have a high-interest rates policy that yields hot money flow. We'll support production and export with low-interest rates.”
Foreign currency reserves
Despite Erdogan’s assertion that foreign investors making long-term investments in Turkey “have always won” and “will keep winning”, there is growing anxiety that the country could be set on a course of hyperinflation.
Critics have also pointed to the fact that, while Turkey’s gross currency reserves stand at $125bn, when swaps and other liabilities are removed the country’s net reserves amount to $32bn, according to Reuters – though it adds that the true figure is a negative balance once swaps with local banks are taken into account. Bloomberg puts the actual figure at minus $35bn.