The Central Bank of Turkey sold USD 1.3bn on Wednesday in six separate forex auctions to support the local currency. This was the second heavy intervention by the Central Bank this week. On Monday, the Central Bank sold a record USD 2.25bn in seven back to back auctions.
Fitch’s warnings about the Turkish economy and its credit rating caused more concerns, hitting the local currency on Wednesday. Turkey looks to have more room for fiscal stimulus, but Fitch expects heightened political unrest and deteriorating market sentiment to constrain its room for manoeuvre, the rating agency said in a non-rating action commentary on Wednesday. Prolonged social unrest, poorly handled, could deter tourism, exacerbate short-term capital outflows, drive-up inflation and damage economic growth, potentially putting Turkey's sovereign rating at risk, Fitch also said.
The Central Bank has sold a total of USD 6.2bn this year, all during the past month. The Bank started forex-selling auctions on June 11. Expectations that the US Federal Reserve would soon start to slow its stimulus programme prompted the sell-off in TRY. The local currency lost around 9% of its value against USD since May. Economists say the Central Bank’s total net reserves are now below USD 40bn and it may sell additional USD 10-15bn to defend the local currency.
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