Central Bank acts swiftly to make lira more attractive

The Turkish Central Bank has intervened to stabilize the national currency after the Turkish Lira hit all-time lows against the U.S. dollar.

In a first response to the lira's falling to 7.30 versus the dollar on Aug. 6, the bank took steps to curb liquidity and make lira investments more attractive.

Liquidity limits offered to primary dealers as part of open market operations will be cut to half of their current limits, the Central Bank announced on Aug. 7.

The new limits will be effective as of next Aug. 10, the bank said in a statement.

Tightening liquidity conditions with the move aims to head off more lira weakness, according to unnamed sources quoted by the state-run Anadolu Agency. 

The Central Bank slashed its one-week repo rate- also known as the bank's policy rate- to 8.25 percent from 24 percent in less than a year.

However, the bank has in recent days lifted average funding costs from low levels, while the interbank rate also edged higher on Aug. 7. It has also halted repo auctions and told lenders to use a 9.75 percent overnight rate instead.

The lira hit a new record low of 7.36 against dollar on Aug. 7, before recovering to below 7.20 in the afternoon. It is down nearly 19 percent versus the dollar so far this year, despite the greenback's own weak performance in recent weeks.

Critical banking summit

Late on Aug. 6, Central Bank Governor Murat Uysal met with the Banking Regulation and Supervision Agency (BDDK) head, Mehmet Ali Akben, the Banks Association of Turkey (TBB) chair, Hüseyin Aydın, and officials of several banks.

Uysal told the attendees that banks and regulatory authorities have given a good account of themselves during the coronavirus pandemic, which...

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