Turkey Buoys Lira With $1 Billion Intervention as Deficit Concern Persists
Turkey’s central bank sold more than $1 billion of its reserves, stepping up a two-month campaign to arrest a slump in the lira that’s triggered by concern about the record current account gap.
The lira rose 0.5 percent to 1.8574 per dollar at 8:02 p.m. in Istanbul, reversing earlier losses. The central bank, which announced the intervention on its website, sold more than $500 million for liras, according to three traders who asked not to be identified because they are not authorized to speak publicly on the matter. It also sold $750 million earlier today through a pre-announced auction.
“I’m not sure this intervention sends the right signal to the market,” Roderick Ngotho, a strategist at Royal Bank of Scotland Group Plc, said by e-mail. “The lira had already come under pressure due to the current account. Those who are bearish on the lira hold that stance primarily because of the impression that the sizable current account deficit will persist.”
Turkey’s central bank is seeking to defend the lira with foreign currency reserves that totaled $85.1 billion on Oct. 7, less than a fifth of Russia’s $510.4 billion in gold and foreign currency. Indonesia, India and South Korea, as well as Brazil and Peru, sold dollars last month to stem declines in their currencies, according to central bankers and traders. Russia also sold foreign currency in September, UniCredit SpA, wrote in an e-mailed report on Sept. 29.
Turkey has been selling dollars through regular auctions for more than two months as the country’s record current-account deficit of almost 10 percent of economic output and European financial woes dented investor confidence.
The central bank in Ankara said it intervened after seeing “unhealthy prices as a result of speculative behavior linked to a loss of market depth,” according to an e-mailed statement. It said it may also sell “a large amount” of foreign currency in an auction tomorrow. It didn’t say how many dollars it sold today.
Yields on two-year benchmark bonds fell 12 basis points, or 0.12 percentage point, to 8.55 percent, sliding for the first day in four.
“I do not believe that the direct interventions will have any more effect than the foreign-exchange auctions did, because the underlying problem is the same,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed response to questions. “It would run out of reserves quickly.”
The central bank’s foreign exchange reserves declined $2.4 billion in the week to Oct. 7, selling dollars as the lira slid to a record low of 1.9096 per dollar. It sold $70 million yesterday.
Investors should buy liras at a rate of 1.87 per dollar and sell at 1.79 because the central bank will intervene “aggressively” to support the currency, JPMorgan strategists including Mike Trounce said in an e-mailed report to investors.
“In the short run the central bank has the determination and capacity to support the lira,” Trounce said in the report.
The bank started selling dollars for lira on Aug. 5, the day after it cut the benchmark one-week repo rate to a record low. The lira’s slide has been “useful and sufficient,” Governor Erdem Basci said Sept. 30. The currency traded at 1.8599 per dollar that day. Direct market interventions aren’t always successful and can cause more volatility, Basci said.
“The market is now challenging the central bank’s commitment and its capacity to contain the currency depreciation,” HSBC currency strategist Murat Toprak said. “The central bank has now no choice but to be more aggressive.”