ISTANBUL: Turkey doubled tariffs on some US imports including alcohol, cars and tobacco on Wednesday in retaliation for US moves, but the lira rallied further after the central bank’s liquidity moves had the effect of supporting the currency.
Ankara acted amid increased tension between the two NATO allies over Turkey’s detention of a Christian American pastor and other diplomatic issues, which have helped send the lira tumbling to record lows against the dollar.
The currency has lost nearly 40 percent against the dollar this year, driven by worries over President Tayyip Erdogan’s growing influence on the economy and his repeated calls for lower interest rates despite high inflation.
It rebounded some 6 percent on Wednesday, briefly strengthening to less than 6.0 against the dollar, after the central bank squeezed lira liquidity in the market, effectively pushing up rates and supporting the currency.
Optimism about better relations with the European Union after a Turkish court released two Greek soldiers pending trial and a banking watchdog’s step to limit foreign exchange swap transactions have also helped the lira.
“They are squeezing lira liquidity out of the system now and pushing interest rates higher,” said Cristian Maggio, head of emerging markets strategy at TD Securities.
“Rates have gone up by 10 percent … The central bank has not done this through a change in the benchmark rates, but they are squeezing liquidity, so the result is the same,” Maggio said.
The lira firmed as far as 5.75 against the dollar on Wednesday and stood at 6.1320 at 1243 GMT in a move initially triggered by the Turkish court decision on the Greek soldiers who faced espionage charges.
A treasury desk trader at one bank said this showed relations with the EU could recover “while tense relations continue with the USA.”
The lira was also helped by a step from the banking watchdog BDDK, cutting the limit for Turkish banks’ forex swap, spot and forward transactions with foreign banks to 25 percent of a bank’s equity.
“Remarkable turnaround,” Tim Ash, Bluebay Asset Management senior emerging markets analyst wrote in a client note. “They are killing offshore lira liquidity to stop foreigners shorting the lira,” he said.
The lira had rebounded about 8 percent on Tuesday on news of a planned conference call on Thursday in which the finance minister will seek to reassure international investors. A Finance Ministry official said so far 3,000 people have signed up for the call.
Turkey’s banking sector remained strong and liquid and the measures taken to support the market have started to show impact, Turkey’s Akbank chief executive said and added there were was no withdrawal of deposits.