ECONOMY

Emergency Turk lira meeting

ISTANBUL (Reuters) – Turkey’s central bank said yesterday it will hold an extraordinary meeting of its monetary policy committee tomorrow, five days after its last meeting and after the lira fell at one stage to levels not seen since the start of the Iraq war in March 2003. The announcement of the meeting followed a round of market intervention by the central bank to support the lira against the dollar, as the lira has lost nearly 25 percent of its value since the end of April. The Turkish currency’s weakness has been caused by sharply higher-than-expected inflation, political tensions and a flight of funds from emerging markets generally. Yesterday’s intervention, the second in two weeks which released about $2 billion of reserves, temporarily buoyed the currency. But after the central bank first bought dollars at 1.71 lira per dollar it weakened to the day’s low at 1.7650, just above the all-time low of 1.77, but rose to 1.7160 after the announcement of the MPC meeting. Analysts expect the bank to raise interest rates at tomorrow’s meeting which will be between 14.00 and 17.00 hours. The result will be announced between 17.00 and 19.00 hours. Analysts said the bank’s moves to support the lira were ineffective as buying had been in small amounts throughout the day. «Buying $20 million or $50 million at a time just left the market unimpressed. I mean we had waited 10 days for it… they should have come in hard… which leaves credibility in them and the CPI target low,» said Lucy Bethell at Royal Bank of Scotland. Turkey’s has an inflation target of 5 percent for 2006. «The market is a bit nervous and buyers are just following the foreign exchange rates. We have basic fundamental concerns about inflation and further inflation because of the rapid depreciation of the lira,» one banker said. On Thursday, the lira briefly strengthened on news of tax cuts for investors, but gave up those gains amid extended global weakness in emerging markets. The central bank last intervened in the market selling dollars on June 13 after a sharp hike in interest rates failed to halt the lira’s slide. That was its first intervention to support the lira since May 2004. Interest rate speculation The bank made a surprise 175-basis-point hike in overnight interest rates earlier this month amid concerns that Turkey will far overshoot its end-2006 inflation target of 5 percent. Economists are keenly awaiting the June inflation data on July 3 and will be looking out for fresh rate hikes when the MPC meets tomorrow. Inflation in May was 9.86 percent year-on-year. The central bank left key interest rates unchanged this week and argued they were more likely to remain stable than go up, but it said it was prepared to tighten monetary policy to rein in inflation. Turkish stocks also closed down on the day, falling 3.2 percent to close at 33,132.30 points. «The falls were in line with the currency and the fall in that is linked to developments abroad. There is an MPC meeting at the weekend and a rate hike is expected,» said Seker Investment strategist Kadir Sezerler. Political tensions center on the possibility of early general elections, tensions between the Islamist-rooted ruling party and secularists and concerns that the Cyprus problem will obstruct Turkey’s progress toward European Union membership. Ankara is under pressure to move toward recognition of EU member state Cyprus’s internationally accepted Greek-Cypriot government. It currently backs breakaway Turkish Cypriots. Investors have fled emerging markets generally as higher rates in the United States attract funds and monetary tightening at the Bank of Japan reduces a source of cheap cash.