Turkish central bank struggles to prop up lira

Turkish central bank struggles to prop up lira

ANKARA - Turkey faces another week under pressure in its fight to shore up the lira as well as growth.

The country is in the front line of emerging economies hit by an outflow of investment because the US Federal Reserve central bank is signalling that it will soon curtail the injection of stimulus funds which have supported the US economy, and growth abroad, and have helped to keep interest rates low.

The Turkish central bank ended last week on the back foot after a rate rise, and intervention on the foreign exchange market, failed again to halt a fall of the lira and share prices, and a rise of the 10-year borrowing rate.

Meanwhile, the government took the line that the US Federal Reserve was fuelling uncertainty, that Turkey would emerge stronger from the turmoil and that the lira would eventually recover.

The events of last week demonstrated changes of direction by the central bank and a dilemma over growth for the government.

At the central bank, declarations of determination to tighten monetary policy as needed have hardened since it announced emergency measures at the beginning of July.

The government has also modified its tone, since three months ago Prime Minister Recep Tayyip Erdogan attacked those who argued for higher rates against a background of serious civil unrest seen as his greatest challenge since coming to power in 2002.

Before the central bank, statutorily independent, announced its emergency measures including the use of foreign reserves to buy lira, Erdogan had said repeatedly that the bank would do everything necessary to hold rates down, hoping to sustain growth.

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