Turkey’s Central Bank injects US dollar into forex markets for second time this week

Citing "unhealth price formations," the Turkish Central Bank has intervened in the foreign exchange markets for the second time this week to stem the lira’s decline against the U.S. dollar.

Friday December 03 2021 01:52 pm

Duvar English - Anadolu Agency

Turkey's Central Bank has intervened in the foreign exchange markets for the second time this week "due to unhealthy price formations in exchange rates," the bank said on Dec. 3.

Following the move, the Turkish lira gained ground against the U.S. dollar slightly, falling to 13.41 from 13.88.

The bank's previous direct foreign exchange intervention came on Dec. 1 for the first time since January 2014, when it had made a sale of $3.15 billion.

The Central Bank announces foreign exchange interventions to the public on the same day, and the amounts are published 15 days after the intervention.

The Turkish lira was set to lose about 9.7% this week, following the appointment of a new finance minister and President Recep Tayyip Erdoğan's recommitment to keep interest rates low.

Ratings agency Fitch also downgraded Turkey's outlook to "negative," citing risks from the direction of monetary policy.

The ratings agency described the central bank's easing cycle, which started in September even when inflation was accelerating, premature and said it caused deterioration in domestic confidence reflected in a sharp depreciation of the currency.

Since September, the central bank cut the policy rate by 400 basis points to 15%, but the governor signalled that aggressive policy easing would likely pause in January after one more rate cut this month.