Turkey's central bank on Tuesday relaxed foreign exchange rules to bolster the lira but the move, shrugged off by analysts, did little to stem the stricken currency's downturn. The bank said it had reduced its foreign exchange reserve requirement ratios to inject 1.5 billion dollars into the market.
But analysts said more firepower was needed, with one saying markets were unimpressed with the "fairly toothless" move. The bank raced to stop the currency's slide after political instability and security fears in the country following a bloody 2016 drove it to a record low on Monday.
The lira recovered slightly against the dollar after the bank's announcement. By 1430 GMT it was down 1.6 percent at 3.77 against the dollar, after an earlier 2 percent gap. "Additional steps may be taken in order to maintain price stability and financial stability," the bank said. Analysts said the central bank would still be under pressure to raise rates when it meets on January 24.
While the lira had pared some of its losses against the dollar "history suggests this may be temporary," said William Jackson at Capital Economics. "With policymakers clearly spooked by the decline in the lira and today's moves likely to have only a short-term impact, outright hikes in official interest rates look increasingly likely". The lira, which has lost around 20 percent in value against the dollar over the last three months, had slumped to a new low Monday as political uncertainty in the country took its toll.
Pounded by higher-than-expected inflation and security fears, it quaked over a warning from ratings agency Moody's that the slew of attacks in the country were likely to weigh on the economy and squeeze the country's banks. Turkey's Deputy Prime Minister Nurettin Canikli on Tuesday called the Moody's statement "irrational" and "an attack". Analysts had predicted the debate in Turkey's parliament over a controversial new draft constitution aimed at expanding the powers of presidency under Recep Tayyip Erdogan could compound the currency's woes. The debate kicked off on Monday and is expected to last two weeks, though the uncertainty could drag on for months. If the measure is approved by parliament, a referendum is expected to take place within 60 days, indicating a date in late March or early April.