ECONOMY

Turks intervene to stop rising lira

ISTANBUL – Turkey’s central bank intervened in the currency market to buy dollars for lira yesterday afternoon to stem a rise in the lira’s value that some investors say poses a threat to exports and the current account. The intervention came as an IMF team arrived in Ankara for the Fund’s latest review of Turkey’s economic pact. Analysts said potential problems with completing the review may help weaken the lira in the coming weeks and narrow the current account deficit. Bankers told Reuters the bank had stepped in as the lira traded at around 1,452,000 to the dollar. It closed at bids of 1,489,000 on the interbank market. The lira, which closed Tuesday at 1,460,000, has soared around 19 percent from record lows of some 1,772,000 to the dollar seen in March, when investors worried war in Iraq and tensions with the US might send the country back into recession. «The central bank today intervened on the buying side on seeing a repeat of extreme volatility,» the bank said. The bank last intervened on May 12 to buy dollars for lira. It had intervened to buy lira for the US currency on December 24, when the currency traded at 1,700,000 to the dollar. The strong lira has sparked complaints from exporters and other business groups who see a weaker currency as helping their export competitiveness in terms of price. Analysts said the central bank will most likely intervene again to arrest any future firming of the lira, floated amid a February 2001 financial crisis. While seeing no sharp fall in the currency in the coming weeks, analysts said the government’s foot-dragging on a swathe of IMF-backed reforms, including measures on public spending and taxation, may weaken the lira if problems arise with a visiting IMF review team. «I think the IMF review might provide some help in preventing the appreciation of the lira… I’m not surprised the central bank intervened because the lira in real terms is very strong,» said Marco Annunziata at Deutsche Bank in London. «It makes you somewhat concerned looking at the current account prospects going forward.» The IMF is due to complete its review of Turkey’s $16 billion pact within two weeks. Its board could meet in early June to approve a $500 million loan tranche, provided it is satisfied Ankara has met the pact’s conditions. Turkey’s foreign trade deficit jumped 74.6 percent in the first quarter of the year to $4.08 billion, raising worries for the current account. The current account deficit had jumped to $1.18 billion in the first two months of the year, the latest available data, against a deficit of $286 million in the same period of 2002. The central bank said the lira’s strength did not reflect economic fundamentals but was linked to widespread sales of foreign exchange in recent weeks to meet corporate tax payments in lira. The lira is now around 54 percent below the level it was at just before the 2001 financial crisis struck.