Turkey central bank props up forex reserves

ISTANBUL: Turkey’s central bank Thursday sought to reassure investors over its foreign currency reserves after the sharpest drop in the local lira since a spat with the United States triggered a currency crisis last year.

The lira slid nearly 6 per cent last week, prompting President Recep Tayyip Erdogan to call for a crackdown on market “manipulations” and Turkish regulators to open a probe into investment banks.

After recovering losses early this week, the lira fell again around 5 per cent to 5.59 against the dollar on Thursday morning, prompting Erdogan to blame fluctuations on a Western plot to undermine Turkey.

Lira turmoil is sensitive for Erdogan before Sunday’s municipal elections when his ruling AKP party is battling to win major cities after the economy slipped into recession for the first time in a decade.

In an interview with state-run Anadolu agency, central bank governor Murat Cetinkaya said the bank continues to implement its reserve-building policy.

“Although reserves may fluctuate due to periodic factors, there has been a consistent uptrend in reserves in the medium term,” Cetinkaya said.

He said gross reserves had increased across all items by $4.3 billion (Dh15.79 billion) and by March 27 reached $96.7 billion.

Erdogan on Thursday blamed the currency fluctuations as part of a plot by the West to “corner Turkey, particularly by the US”.

Analysts said worries over reserves and attempts by the Turkish authorities to control short selling of the lira had also spooked investors.

Turkey’s main stock index on Thursday was down 0.73 per cent after opening. On Wednesday, the index was down 5.67 per cent at closing, according to Anadolu agency.

Turkey’s lira collapsed last year after a diplomatic spat with the United States led to tit-for-tat sanctions and an increase on US tariffs on some Turkish products.

The AKP has built its electoral success over the last decade and a half on Turkey’s strong economic growth under Erdogan who has been in power for 16 years first as premier and then as president.

Analysts see Turkey’s economy at risk because of its heavy foreign debt repayments and investors’ wariness of the direction of policymaking under Erdogan’s government.