Turkish central bank bolsters markets against corruption probe

Turkish markets firmed on Wednesday after the central bank vowed to defend the lira, which has come under heavy pressure from a corruption scandal and worries about the country’s current account gap.

The central bank’s offer of hefty forex-selling auctions, amounting to at least $6 billion until the end of January, has helped to temper market reaction to a corruption investigation that has pitted the government against the judiciary. Two ministers resigned on Wednesday after their sons were arrested.

The central bank sold $450 million in a regular forex auction on Tuesday. The bank will sell a minimum $450 million every day until the end of 2013, Governor Erdem Basci told a news conference on Tuesday, totaling at least $3 billion until year-end.

Basci also said the bank will sell at least $3 billion by the end of January through forex-selling auctions.
The lira firmed to 2.0642 against the dollar by 0917 GMT, from 2.0786 late on Tuesday and versus 2.0950 on Tuesday morning. It hit an all-time low of 2.0983 against the dollar on Friday.

The yield on the 10-year benchmark bond fell to 9.85 percent from 10.09 percent a day before.

“The central bank’s hefty forex sales will likely to lead the lira stronger in the short term, amidst lack of foreign participation,” said Erkin Isik, a strategist at TEB-BNP Paribas.

“However, in January, $3 billion in forex sales may not be enough to strengthen the lira, especially in a scenario where global risk sentiment weakens and local political risks continue.”

Already under pressure this year in anticipation of the U.S. Federal Reserve’s decision this month to stem a flood of dollars that has boosted global emerging markets, the lira has been beaten down further by the corruption probe.

Turkey needs to import almost all of the oil it uses, which gives it one of the world’s biggest current-account shortfalls and makes it heavily dependent on foreigners buying its stocks and bonds to bring in capital.

Turkey’s main stock index .XU100 rose 1 percent to 69,690.46 after sustaining heavy losses last week.