Turkey c.bank moves to counter currency volatility
Turkey’s central bank said it would act when necessary to counter the impact of excessive forex market volatility on price and financial stability, as police clashed with anti-government protesters in Istanbul.
The central bank said short-term additional policy tightening would be implemented through open market operations, and said it may hold intraday forex-selling auctions or intervene directly if necessary.
The lira firmed after the announcement, having slumped last week to its weakest level against a euro/dollar basket since October 2011.
‘Excessive volatility has been observed in the foreign exchange market due to the international and domestic developments during the last month,’ the bank said in a statement on its web site.
Similar measures were taken by the central bank in late 2011 and early 2012 to support the currency.
Emerging markets have been thrown into turmoil since the U.S. Federal Reserve said it could begin slowing the pace of its bond-buying with new money in the months to come. Countries with obvious domestic problems as well have borne the brunt.
Turkish riot police fired water cannon and teargas at hundreds of protesters in Istanbul’s Taksim Square on Tuesday, entering the square for the first time since demonstrations against plans to develop a park there turned violent.
The police move came after Prime Minister Tayyip Erdogan agreed to meet protest leaders, whose peaceful demonstrations two weeks ago spiralled into protests against his government in which three people have been killed and about 5,000 hurt.
The central bank did not hold its usual fixed-rate repo auction on Tuesday.
‘It is possible that the central bank could suspend funding the market at 4.5 percent policy rate today. This would push both interbank rates and the effective funding rate for the banking system to the ceiling of the interest rate corridor, 6 percent,’ said Inan Demir, an economist at Finansbank.
The underlying state of the economy is relatively sound – GDP data released on Tuesday showed the economy grew three percent year-on-year in the first quarter, exceeding forecasts.
But the current account deficit widened to $8.17 billion in April from a revised $5.5 billion a month earlier.
Reuters
