Turkish cbank won't defend lira with rates
Istanbul, August 27, 2013
Turkish Central Bank Governor Erdem Basci said on Tuesday he did not intend to hike interest rates to defend a sliding lira, which hit record lows on concern about the outlook for US stimulus and the conflict in neighbouring Syria.
In an interview with the state-run Anadolu news agency (AA), Basci said the central bank had $40 billion in reserves which it could use to shore up the lira and would intervene defensively as needed to reduce exchange rate volatility.
The lira weakened to a record low of 2.03 to the dollar as markets wondered whether the bank had the firepower necessary to defend the currency.
The main Turkish share index slid 3 percent to a fresh year-low.
The 10-year benchmark bond yield spiked to 10.83 percent during Basci's interview, which was broadcast live on Turkish financial TV stations, from 10.18 percent on Monday.
"We will not be using our interest rate weapon against the exchange rate. We are very clear on that and we have said there will not be any uncertainty about interest rates," Basci told AA Finans.
"Since we will not be using this then we are left with the balance sheet weapon, and that is a very powerful weapon. That means we will use our foreign exchange reserves against the slide in the foreign exchange market."
Emerging markets have borne the brunt of heavy selling in recent weeks amid concern that the US Federal Reserve will soon start reducing its massive bond-buying programme, which had flooded developing economies with cheap liquidity.
Turkey is particularly vulnerable because it is heavily dependent on foreign inflows to finance its current account deficit, running at over 7 percent of national output.
Basci said he was not overly worried about the exchange rate, forecasting it would recover by the end of the year to around 1.92 to the dollar, and that long-term bond yields would also be back in single digits. - Reuters
