Turkish central bank says has no lira target, state banks active in market

Turkish Central Bank Governor Murat Uysal said the bank has no target for the lira’s value after the currency slumped to successive record lows against the dollar and euro.

State-run banks will continue to be active in the currency markets, Uysal told reporters on Wednesday, when asked about past and future interventions by the central bank to prop up the currency.

The lira was trading down 0.9 percent at a fresh record low of 8.2564 per dollar after Uysal spoke at the central bank’s televised quarterly event on inflation. Losses for the year widened to 28 percent.

The central bank’s reserves of foreign exchange have come under pressure in recent months, but that trend is expected to reverse going forward, Uysal said. The central bank’s reserves have shrunk by tens of billions of dollars this year as it worked to prop up the lira, partly via currency swaps with state-run banks.  

The lira is extremely undervalued at current levels after a widening current account deficit, a sharp increase in loans and dollarisation squeezed the currency, Uysal told reporters.

The central bank is continuing with its monetary tightening bias and could consider further measures, including hikes to the benchmark interest rate, Uysal said.

The lira has hit record lows over the past week after the central bank surprised investors by keeping its benchmark interest rate unchanged at 10.25 percent at a monthly meeting on monetary policy last Thursday. Most investors were expecting a hike of between 1 percentage points and 3 percentage points.

Uysal said the central bank had raised its end-2020 consumer price inflation forecast to 12.1 percent from a previous 8.9 percent. Inflation at the end of next year was expected to slow to 9.4 percent, he said. The bank’s previous estimate was for inflation of 6.2 percent in 2021.