The Turkish Central Bank intervened directly in the foreign exchange market on Monday, traders said, selling dollars and prompting a further strengthening of the lira since it began intervention on Friday. Monday's intervention amounted to around $300 million, traders told Reuters.
The Turkish currency firmed as far as 1.8760 against the dollar during the intervention from 1.8950 beforehand. It stood at 1.8785 at 1015 GMT. "I wouldn't have expected the bank to intervene directly again, after Friday's intervention. It's surprising. It doesn't make sense to intervene every day as it creates volatility," said Mehmet Besimoglu, chief economist at Oyak Securities.
"The forex demand is not speculative. So, even if during the intervention the lira firms (versus the dollar), it would weaken again. The central bank can only limit the weakening. They are probably targeting a certain level for the real foreign exchange rate," he added. Central Bank Governor Erdem Basci said last week the bank may sell foreign currency directly on "exceptional days", without specifying what would make a day exceptional.
The bank subsequently intervened aggressively in the forex market on Friday, selling around $2 billion in addition to a daily forex-selling auction volume of $750 million, traders said. Separately, the central bank said on Monday it will not allow forex market moves which are not based on macroeconomic fundamentals to affect inflation expectations negatively.
The lira touched a record low of 1.9215 in late trade last Wednesday due to concerns about monetary policy measures. The central bank's unorthodox policy mix last year has combined lower interest rates, higher banking reserve ratios and a wider gap between borrowing and lending rates as it looks to rein in the current account deficit and defend the lira.
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