Turkish central bank flies to the rescue of the pound

Posted on Dec 1, 2019 2021 at 11:40Updated Dec 1, 2019 2021 at 12:07

The Turkish central bank intervened on Wednesday to support the pound in distress since its crash last week. She sold dollars to buy Turkish liras. The dollar was flirting with the 14 pound (13.95) level before the central bank intervened in the foreign exchange market. The Turkish currency rebounded 8% but very quickly reduced its gain to just 2%. The dollar stands at 13.29 pounds and the euro at 15.03 pounds.

The Istanbul Stock Exchange rose 2.7% at the end of the morning. The central bank is expected to opt for the monetary status quo at its last meeting of the year on December 16. Lowering interest rates by 100 basis points again would trigger another chaotic session for the Turkish lira.

limited ammunition

The central bank has bought time. Its very limited foreign exchange reserves do not bode well for repeated intervention in the currency market. According to “Middle East Eye”, Turkey’s central bank is negotiating a currency swap deal with its counterpart in the United Arab Emirates. Goal ? Have at least $ 5 billion in additional foreign exchange reserves to help stabilize its currency in the turmoil of spiraling inflation and strong growth. Turkish Gross Domestic Product grew 7.4% in the third quarter year on year, the best performance of the G20 countries, but at the cost of a currency plunge.

Limited effectiveness

In 2018-2019, Turkey’s central bank spent nearly $ 128 billion to support its currency. However, these interventions did not succeed in reversing the trend. The markets considered the measures too timid and felt that the central bank had lost its independence from political power.

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