Turkey: Central Bank takes action on lira depreciation
August 1, 2011
On 29 July, the Turkish lira (TRY) traded at 1.68 per USD, the weakest level since April 2009, as the widening current account continues to put pressure on the currency. In addition, tensions stemming from the debt crisis in the Eurozone periphery are further contributing to the depreciation, as investors are gradually switching to safer assets. The end-of-month reading represented a 2.4% depreciation over the 1.64 TRY per USD tallied on the last day of June. On a year-on-year basis, the lira depreciated a whopping 10.0% versus the U.S. dollar. Despite the explicit Central Bank strategy to narrow the current account deficit through the weakening of the lira, high currency volatility has prompted the Bank to take action. The latest move to ease pressure on the currency was taken on 9 August, when authorities announced a reduction of the interest rates at which banks are able to borrow foreign currency in the foreign exchange deposit market. This measure came on top of the previous decision to hold daily USD selling auctions when deemed necessary, and a reduction in the reserve requirements ratio on foreign exchange deposits to avoid immediate currency depreciation.