How much Turkey’s central bank care for lira?

- This is the English translation of the original Turkish blog post for The Wall Street Journal published on 8/23/2013 (Prices have been modified with more recent ones)

After the US dollar rockets to above 2,2 Turkish liras, there is still no sign of Turkey’s central bank returning to orthodox policies which makes me believe central bank is more worried about growth and current account than inflation and lira.

Standard Bank’s Tim Ash says “… if the CBRT really cares about the lira. And there is the problem, we are not sure if the CBRT really cares that much about the lira, and inflation, but is more concerned about growth” in a research note.

Now it is obvious that TCB’s main strategy to sell forex to cool down the lira is ineffective. However Governor Erdem Basci insists on using tools such as Reserve Option Coefficient and FX auctions. So it can be concurred that the Central Bank is happy with its policies and where the Turkish lira trades at.

Once we accept Central Bank is happy with the value of Turkish lira, then it is not hard to understand main concern of the bank is to fund gigantic CAD as well as not taking the foot of the growth pedal. Moreover TCB calculated that the increased energy bill in liras – Turkey imports more than 75 percent of the oil processed in refineries – won’t be a problem. The dragging effect of high energy bill on economy will be countered with the rise in exports.