Turkey’s lira strengthened, erasing earlier losses, as the central bank implemented measures to shield the currency from volatility triggered by anti-government protests and after economic growth exceeded estimates.
The lira recovered after initially extending the worst decline in a year yesterday as police raided Istanbul’s Taksim Square, the center of protests since May 31. The central bank withheld funds at its policy rate of 4.5 percent in its daily repo auctions today for the first time in more than a year and said the amount may be reduced temporarily. The economy expanded 3 percent in the first quarter annually, beating the 2.3 percent median estimate of 11 economists on Bloomberg.
“Today’s statement from the central bank shows it is upset about the recent moves on the Turkish lira,” Ali Cakiroglu, a strategist at HSBC Asset Management, said in an e-mailed note. “This will have a positive effect on the central bank and liquidity management will become much more important in the coming period.”
The exchange rate climbed 0.6 percent to 1.8911 per dollar at 5:51 p.m. in Istanbul. Yields on two-year benchmark bonds rose 32 basis points to 6.82 percent, the highest level since Nov. 7. The Borsa Istanbul Stock Exchange National 100 Index (XU100) fell 1.8 percent, bringing its retreat since this year’s peak in May to 19 percent.
Turkey’s current-account deficit widened to $8.17 billion in April from $4.55 billion a year earlier, in line with the median estimate of $8.1 billion in a Bloomberg survey.
The central bank said in a statement today it may start foreign exchange selling auctions with $50 million in each auction and direct interventions if necessary. It sold $250 million in five auctions today after the announcement.
The bank has sufficient reserves to protect the lira from further weakness and could “comfortably” sell about $10 billion through unsterilized interventions, Goldman Sachs Group Inc. economists Ahmet Akarli and Kasper Lund-Jensen in London said in an e-mailed report today.
Hundreds of police officers raided Taksim Square, using water cannons and pepper spray to disperse demonstrators. Some protesters threw firebombs at the police as they moved in. The aim of the operation is to clear the area of illegal banners and not to crack down on protesters in central Gezi Parki, CNN-Turk television reported, citing the office of Istanbul Governor Huseyin Avni Mutlu.
“The events may escalate today, especially tonight, as the protesters may try to fill Taksim Square again,” Ibrahim Aksoy, an economist at Seker Invest in Istanbul, wrote in an e-mailed note. “We may see continued volatility in the market.”
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