Turkey’s central bank intervenes again to halt pound fall to new low

The Turkish pound set a new record low, prompting the immediate intervention of the country’s central bank, which sold dollars in the market.

The new fall of the pound and the subsequent intervention by the central bank, came after the rating agency Fitch revised the country’s outlook from “negative” to “stable”, regarding the risks posed by the recent easing of monetary policy.

Economists have widely criticized President Erdogan’s aggressive policy of cutting interest rates as reckless, and have warned that the central bank could not properly defend the currency because of its depleted reserves.

The pound fell to 13.89 against the dollar, to recover slightly after the intervention of the central bank, at 13.37.

The currency hit a record high on Tuesday, a dramatic drop since February, when half a pound was needed to buy a dollar.

The central bank began intervening the next day, and the pound has since approached 13.9 three times, with authorities reluctant to let it exceed the 14 level.

“The impact of the intervention is rather small because the markets know that stocks are running low,” an analyst told Swissquote.

“High inflation requires interest rates to be adjusted. The sale of reserves is weakening the central bank’s power, and it should have an increasingly limited impact on the moving currency as we move forward,” he said.

The data showed that inflation reached a three-and-a-half-year high of 21.31% in November, exceeding estimates and further exposing the risks of recent aggressive interest rate cuts.

Erdogan has repeatedly defended low-interest rate economic policy over the past two weeks, and the government, regulators and the banking union have all rallied around what he calls a “new economic model.”

Fitch described the central bank easing – which began in September despite inflation accelerating – as premature, and said it had caused a drop in domestic confidence, reflected in a sharp devaluation of the currency.