Identifier
Created
Classification
Origin
05ANKARA498
2005-01-28 16:20:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ankara
Cable title:  

Turkish Central Bank Intervenes: Motives

Tags:  EFIN TU 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.

281620Z Jan 05
UNCLAS SECTION 01 OF 02 ANKARA 000498 

SIPDIS

SENSITIVE

TREASURY FOR OASIA -- RADKINS, CPLANTIER
NSC FOR BRYZA AND MCKIBBEN

E.O. 12958: N/A
TAGS: EFIN TU
SUBJECT: Turkish Central Bank Intervenes: Motives
Unclear

REF: ANKARA 197

SENSITIVE BUT UNCLASSIFIED.

UNCLAS SECTION 01 OF 02 ANKARA 000498

SIPDIS

SENSITIVE

TREASURY FOR OASIA -- RADKINS, CPLANTIER
NSC FOR BRYZA AND MCKIBBEN

E.O. 12958: N/A
TAGS: EFIN TU
SUBJECT: Turkish Central Bank Intervenes: Motives
Unclear

REF: ANKARA 197

SENSITIVE BUT UNCLASSIFIED.


1. (SBU) Summary: The Turkish Central Bank made a
rare direct intervention in foreign exchange markets on
January 27, buying about $1.5 billion to control excess
foreign exchange (FX) market volatility and excess FX
liquidity. This is the first direct intervention since
February 2004 when the Bank bought USD 1.3 billion.
There had been market worries about the level of the
New Turkish Lira rate, which had appreciated rapidly
against foreign currencies since December 17. Yet, the
Central Bank denies that intervention was engineered to
depreciate the lira. End Summary.


2. (SBU) In a January 27 press statement, the Central
Bank said that the level of exchange rate was
determined by supply and demand conditions of the
currency markets under the floating exchange rate
regime. The Central Bank, however, closely monitored
the volatility of the rates and reserved the right to
directly intervene in the market in conditions of
excess volatility. According to the statement, recent
excessive volatility in exchange rates was due to an
increased supply of foreign exchange. The Central Bank
decided to intervene directly in the markets by buying
foreign currency and noted that the fact of the
intervention should not be connected with the level of
the lira.


3. (SBU) However, in their comments on the
intervention, Turkish market players speculated that
the lira's current level was indeed the main motivation
and that the Bank's action should not have come as a
surprise. Market traders said they had been expecting
an intervention if the TRL/USD rate went below 1.34.
The Central Bank started to intervene at 1.3215 January
27, leaving the rate at 1.3490 at the end of the day.
As expected, the level of the exchange rate again
provided a selling opportunity January 28, with the
TRL/USD rate closing the day at 1.3351 and TRL the
continuing its appreciation despite yesterday's strong
intervention.


4. (SBU) Market sources estimated the total amount of
the intervention at $1.2 billion. Central Bank Market
Department DG Cigdem Kose told Econ Specialist that
the total amount of intervention was somewhere between
$1.2 and 1.5 billion. This compares with a total
amount bought by the CBRT of $677.3 million since
market FX auctions resumed on December 22, of which
$241.6 million was bought in December. Daily auction
amounts had been in a range of $15-20 million.


5. (SBU) Kose said that the Bank had been observing
significant market volatility since December 10. The
lira's appreciation against the dollar had been
approximately 8 percent since December 10, and 6
percent since January 6. This, Kose said, was due to a
significant increase in FX flow. Between December 17
and January 14, the CBRT was able to capture about $2
billion in foreign inflows. Additionally, a
significant foreign demand came from Treasury's
domestic borrowing auction this week in which it sold a
net total of 3.5 billion new TRL to the markets (USD
2.7 billion). Furthermore, new TRL denominated
issuance by foreign issuers since the beginning of the
year amounted to about new TL 1 billion ($750 million).
All these of flows caused a significant pressure on the
TRL's level in the FX market, Kose said. Kose also
noted that on January 27 the CBRT observed a
significant flow into Turkey from the NY markets.
Cigdem Kose noted that the CBRT would not consider
changing its daily FX buying amount in the future, but
could consider intervening again as required.


6. (SBU) Comment: In short, Kose said that excess FX
liquidity and high volatility were the two main causes
for the Central Bank intervention decision on January
27, but it seems that the Bank's rare activism (apart
from the daily auction process) was unable to control
the volatility that resumed January 28. The Bank's
action does not appear to reflect a change in basic
policy, which has always reserved the right to
intervene to control unstable market conditions. State
Minister Babacan said yesterday that the Turkish
government did not favor direct intervention under the
free float regime, and that it preferred to keep any
necessary interventions to a minimum. This remark
seems at some variance to the CBRT's thinking. End
Comment.
DEUTSCH