The Central Bank of Turkey announced on Friday it had suspended one-week repo auctions for an undefined length of time.
The central bank has been keeping one-week repo lending rate at 24 percent since September to help arrest a slump in the lira and curb inflation. The central bank uses this base rate for monetary policy purposes to control interest rates.
The bank’s decision to tighten its monetary stance came after reports that its foreign-foreign-currency reserves had dropped unexpectedly and the lira fell as much as 2.1 percent to 5.5814 per dollar on Friday amid signs a new rift between Ankara and Washington over Israeli sovereignty in the Golan Heights.
The lira continued to fall despite the central bank’s move, reaching 5.621 against the dollar at 5:28 p.m. local time (GMT +3).
The Turkish central bank’s net international reserves fell $6.3 billion in the two weeks through March 15 to $28.5 billion , according to data published on Thursday.
Turkish officials have not explained the reason behind the decline in foreign-currency reserves, Bloomberg said.
The erosion, which outstrips the Treasury’s $3.8 billion external debt payments scheduled for March, has aroused suspicions that the central bank may be trying to support the Turkish lira, it said.
“Since external debt repayments can’t explain the decline in reserves, markets are assuming there is intervention going on,” Bloomberg quoted Henrik Gullberg, a strategist at Nomura Plc. in London, as saying.
According to some, the drop in foreign-currency reserves could be linked to state-run energy distributor Botaş. Last year in March, the central bank sold just over $1 billion to the company, which imports gas from Russia, Bloomberg said.
The lira’s slide comes after exceptionally little movement in the currency’s exchange rate this year, which has been attributed to local banks selling dollars to buy the lira, the Financial Times said
“Today the unsustainable nature of state-owned banks being the only sellers of (U.S. dollars in exchange for lira) over recent weeks became evident. The (central bank’s) reserve adequacy is also low relative to levels advised by the IMF and has continued to decline,” the FT quoted Roger Hallam, chief investment officer for currencies at JPMorgan Asset Management, as saying.
Yet the lira’s slump began following signs of a new rift between Ankara and Washington over Israeli sovereignty in the Golan Heights.
The U.S. President Donal Trump said on Thursday on Twitter that it was time for the United States to recognise Israeli sovereignty over the Golan Heights, a region that Israel seized from Syria in 1967.
Erdoğan responded on Friday, saying that Turkey would never allow Israeli occupation to be legitimized.
Last year in August, the Turkish lira hit a record low following a diplomatic rift between Turkey and the United States over the almost two-year detention of an American pastor.
The lira lost almost a third of its value last year and has continued to decline this year, with a slide totaling around 4 percent. The lira will probably lose almost 8 percent of its value by the third quarter, traders say, according to a recent Bloomberg survey.
Source: Ahval News
