Turkish banks warned

ANKARA – Turkey’s central bank is carefully watching what it sees as increasing volatility on Turkish foreign exchange markets, a senior bank official said on Tuesday, warning banks not to open short positions. Turkey’s lira currency has strengthened rapidly against the dollar over the past month and was trading on the independent interbank market at 1,334,000/ 1,337,000 to the dollar on Tuesday morning. That compares with a low of over 1,600,000 to the dollar hit in October. The rise has followed negotiations for a total of some $12 billion over the next three years in IMF lending that are nearing a final phase. «For a while we have been seeing an increase in volatility. (Dollar) sales have increased a lot. We are following this volatility increase carefully,» the official said. The official’s comments caused the lira to fall to 1,336,000 to the dollar on the central bank spot market from Monday’s close at 1,324,000 lira. Turkey floated its currency amid a crisis in February last year when it has lost around half its value. Under a new IMF rescue program that helped give the bank more independence from political control, the central bank has pledged to act only to prevent excessive swings. «The level of exchange rate does not disturb us,» a senior central bank official told Reuters. «What is important is how it got there. If volatility increases, that would disturb us.» Forex traders said that was no change in the bank’s position. «It is already known in the market that the central bank can act against major fluctuations,» said one trader. «The fact that the reaction has only been limited shows these sales may stem from a real need. But this statement should make those banks who want to open positions to profit nervous,» he said. Bankers say part of the recent forex moves stems from foreign investors moving into Turkish lira markets some see as attractive now the country appears to have weathered the worst of its financial crisis. But they say some local banks have begun to switch to short positions. In a report in December, the central bank said the government’s estimates for end-2002 consumer price inflation of 35 percent hinge on the Turkish lira gaining in real terms this year. Turkish banks ran short positions for many years leading up to the crisis last year. They took on dollar liabilities and used the money to earn good interest rates on lira-denominated assets. But the official warned against such moves, which amount to a gamble that potential lira devaluation against the dollar will be less than lira interest rates. «It would be a mistake for banks to switch to short forex positions,» the official said. Currency traders said the remarks did not amount to any change in the bank’s position and much recent selling of dollars for lira had stemmed from foreign investors moving into Turkish markets as a financial crisis appears to be waning.

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