Turkish lira slide triggers fresh central bank intervention

3 minute read

Turkish lira banknotes are seen in this illustration taken in Istanbul, Turkey November 23, 2021. REUTERS/Murad Sezer/Illustration

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  • Central bank announces intervention for third time in two weeks
  • Erdogan endorses monetary easing to drive economic growth
  • End-year annual inflation seen at 23.85%

ISTANBUL, Dec 10 (Reuters) - The Turkish Central Bank said it intervened in the foreign exchange market on Friday to sell dollars as the lira again neared a record low on persisting concerns about President Tayyip Erdogan's low interest rate policy.

It was the third time in 10 days that the bank announced an intervention, despite depleted reserves, due to "unhealthy price formations". The previous two moves were last week and kept the lira below 14 to the dollar. read more

The lira stood at 13.88 to the U.S. currency at 1118 GMT, 0.55% weaker than Thursday's close. It had weakened as far as 13.95 in midday trade before the intervention, close to its all time low of 14.00 hit last week.

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The Turkish currency has lost 46% of its value to the dollar this year, fuelling inflation in an economy which depends heavily on imports.

A central bank survey of market participants on Friday showed one of the biggest ever monthly rises in expectations for inflation.End-year consumer price inflation was seen at 23.85%, up from a forecast of 19.31% a month earlier.

But Bluebay Asset Management's Tim Ash, a veteran Turkey watcher, said the figures were "a lagging indicator at the best of times. I would be surprised if end-year inflation is this low."

Investors are concerned about recent aggressive monetary easing under which the central bank has slashed its policy rate by 400 basis points since September. Inflation jumped to a three-year high of 21.3% last month. read more

Erdogan has repeatedly advocated for the rate cuts as he promotes a new economic plan prioritising economic growth, production and exports, despite widespread criticism of the policy from economists.

He said after a cabinet meeting this week that financial market volatility will eventually stop, blaming price increases on greed and import prices. L8N2ST5A1

Data on Friday showed the unemployment rate fell 0.2 points in October to 11.2%, but a seasonally adjusted measure of labour underutilisation rose 1 percentage point to 22.8%. read more

Ratings agency Moody's said this week Turkey could see consumer price inflation exceed 25% in coming months, with another potential interest rate cut in December adding to upside risks for its forecasts.

The central bank's rate-setting meeting is on Dec. 16.

Moody's also said currency weakness had boosted dollarisation, though so far "confidence in the banking system remains strong with no signs of deposit withdrawals."

The latest central bank survey showed economic growth was seen at 9.9% this year and 4.1% next year.

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Reporting by Ezgi Erkoyun Writing by Daren Butler Editing by Jonathan Spicer

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