Turkey central bank intervenes to bolster lira

Political uncertainty taking its toll on lira

ANKARA - Turkey's central bank said Tuesday it was intervening to bolster the stricken lira by reducing its foreign exchange reserve requirement ratios to inject 1.5 billion dollars into the market.
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.
"Foreign exchange reserve requirement ratios have been reduced by 50 basis points for all maturity brackets," the bank said in a statement.
"With this revision, an additional liquidity of approximately USD 1.5 billion will be provided to the financial system," it said.
The lira began recovering against the dollar immediately after the bank's announcement.
By 1200 GMT it was down 1.2 percent at 3.75 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.
Analyst Ozgur Altug of BCG Partners said the move "might be perceived as a smoothening step, but might not reverse the actual course".
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.
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.
"Downside risks prevail as the country is shaken by a serious threat to its parliamentary regime," LCG senior market analyst Ipek Ozkardeskaya said Tuesday ahead of the bank's move.
"We stay cautiously away from lira and lira denominated assets and warn that the sell-off could continue despite the deeply oversold market conditions," she added.
Turkey's rating was lowered to junk status by Moody's and Standard & Poor's last year, and it is facing a similar move by Fitch later this month.
The central bank first attempted to slam the breaks on the lira plunge in November by raising interest rates for the first time since 2014.