EXTRAORDINARY TOOLS
Turkey's currency TRYTOM=D3 touched an all-time low this week beyond 7.5 per U.S. dollar, keeping imports expensive and inflation near 12% despite a sharp economic slowdown due to the coronavirus.
Analysts say the selloff has laid bare the limits of Turkey’s costly interventions in FX markets to stabilise the lira. They calculate the central bank and state banks have sold some $120 billion in dollars since last year.
The interventions have played a role this year in nearly halving gross FX reserves at the central bank, which has also bought record amounts of government bonds to backstop Ankara’s fiscal response to the pandemic.
Hakan Kara, who was the bank’s chief economist until last year, said extraordinary tools such as interventions and tweaks to required reserves have been over-used and are now blunted.
“These should not be a substitute for the fundamental instrument, the policy rate,” he said, adding the bank needs to “break the spiral” of confidence among citizens and investors.
Only two of six economists polled by Reuters expect a rate hike next week, while they are split on whether one will come by year end.
Uysal has said policy reflects expectations inflation will soon dip and that reserves naturally fluctuate. Finance Minister Berat Albayrak -- Erdogan’s son-in-law -- has said the bank sometimes intervenes to stabilise the currency, and that exporters benefit from some depreciation.
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