Currency wars spreading

Currency wars spreading

ISTANBUL - Hürriyet Daily News
Currency wars spreading

The Central Bank, governed by Erdem Başçı, is struggling to defend the lira. AA photo

Currency wars are spreading throughout the region as Turkey’s Central Bank intervened for a fourth
day in the currency markets yesterday amid similar moves by Iran and news that the Hungarian Forint
plummeted to a new low.

Turkey’s Central Bank continued its direct intervention on the currency market for a fourth trading day in a row yesterday, in addition to a $100 million sale in a daily auction. 

According to trade strategists, the sale raised the Bank’s funding costs as the lira moved slightly to down to around 1.88 per dollar in yesterday’s trading.

The Bank’s direct sales were not declared, however the traders forecast that the total amount in four days since Dec. 30 exceeded $ 3.7 million. 

Tufan Cömert, a strategist at Garanti Investment estimated yesterday’s direct sale at about $200 million. “It is intervening now, but it’s not an aggressive one,” Cömert said, Bloomberg News reported. Central Bank Governor Erdem Başçı is using Turkey’s foreign currency reserves to halt a decline in the currency that’s driving up import costs and helped push December inflation to a 20-month high of 10.5 percent. Forecasts on the bank’s remaining foreign currency reserves vary between $40 million and $50 million, too low compared with the size of the Turkish economy, according to many experts. 

The foreign exchange reserves declined to $82.8 billion as of Dec. 23, equal to about five months of imports. The reserves are down from a peak of $93.9 billion on July 7, according to data from the Central Bank.

The bank yesterday didn’t offer lira funding at the benchmark rate of 5.75 percent, inviting banks to bid for 3 billion liras in one-week repos. The bank lent 3 billion liras in a similar one-week repo auction yesterday at an average annual rate of 11.86 percent. It hasn’t provided liquidity at 5.75 percent since Dec. 28, after the lira fell to a record low of 1.9224 per dollar earlier in the month.

Yields on the two-year benchmark note fell eight basis points, or 0.08 percentage points, to 11.45, declining from 11.53 percent yesterday, the highest level since July 2009, according to the RBS Istanbul Benchmark Bond Index.

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