The Turkish lira hit a new record low on Thursday after the central bank failed to reassure investors on its strategy to defend a currency battered by concerns over the withdrawal of U.S. monetary stimulus and turmoil in the Middle East.
Economy Minister Zafer Caglayan added to pressure on the lira by criticizing the central bank for intervening, saying its forex sales had failed to have any material impact and that the bank should not raise its policy rate.
“The central bank injected around $6 billion to the market through interventions but was only able to move the lira by 1kurus (0.01 lira),” Caglayan told CNBC-e television.
“I don’t find the central bank’s intervention correct ...there is no point in arm wrestling.”
Turkey is one of the most high-profile sufferers from a broader withdrawal in capital from emerging in recent months due to the prospect of the U.S. Federal Reserve reining in its huge program of dollar-printing.
The lira hit a record 2.0840 against the dollar in morning trade, later recovering slightly to 2.0760 by 0844GMT from 2.0606 late on Wednesday. It was also near record lows against the dollar/euro basket at 2.3999.
The central bank has sold a total of $8 billion so far this year at forex auctions.
In a closed meeting with economists on Wednesday, central bank officials hinted at more unorthodox tweaks in its monetary policy, including using gross forex reserves to manage liquidity and support the currency.
But the meeting did little to reassure nervous investors.
“Until the central bank hikes rates by a convincing step, the volatility in the lira and bonds will continue,” said Ibrahim Aksoy, chief economist at Gedik Investment.
The lira hit a record low on Aug. 28, after the bank’s Governor Erdem Basci ruled out interest rate hikes to defend the currency.
That announcement left economists wondering how the bank would support the lira in the face of fears about an imminent tapering in U.S. stimulus, the conflict in neighboring Syria, and Turkey’s gaping current account deficit.
The bank revised the minimum amount of forex it will sell at auction on September 9 twice on Thursday, raising it to $160 million.
The 10-year benchmark bond yield rose to 10.07 percent from 9.99 percent at Wednesday’s close.
The main Istanbul share index fell 0.74 percent to 66,459.94 points, under performing emerging markets peers which rose 0.42 percent.