It is the central bank's first direct intervention in two years after US dollar peaks at 2.29 against Turkish lira ANKARA Turkish Central Bank (CB) has announced that it will intervene in the foreign exchange market by selling dollars after the Turkish lira hit another all-time low against the US dollar this week. This is Turkish CB's first direct intervention in foreign exchange rates in two years. In a statement it issued on Thursday, the CB said it was intervening in the exchange rate due to "unhealthy price levels in foreign exchange rates." Economists are divided on the effectiveness of the practice. The US dollar reached as high as 2.29 against the lira on Thursday but went down to 2.26 after the intervention. The bank typically announces the size of its sales fifteen days afterwards. - 'Psychological threshold reached' The last intervention that began in September 2011 lasted four months with the central bank selling a total of 3.3 billion dollars to mitigate the rise of the dollar, which sat at 1.92 at the time and subsequently swooped to 1.86. Since then, it had been around 1.80 until May 2013 when it began a steady mount that culminated in successive all-time highs since the December 17 anti-graft investigation. The CB announced a week after the launch of the probe that it would begin holding foreign exchange selling auctions worth up to 450 million dollars a day. The bank said it would sell a minimum of 6 billon dollars by the end of January. HSBC portfolio management strategist Ali Cakiroglu told AA that selling dollar reserves might prove inadequate to offset the rise. "We maintain that dollar sales will not be sufficient to alleviate the pressure on the Turkish lira. We think what needs to be done is to raise overnight lending rates." In another announcement on Wednesday, the central bank said it would maintain all of its current short-term interest rates, including overnight lending, indicating that the government is keen to avoid using the interest rates tool to manipulate the foreign exchange. Cakiroglu said they expect an "aggressive amount" in today's foreign exchange auction. Marbas Securities research chief Uzeyir Dogan said the intervention would be useful in preventing speculative increases in the dollar to be "unaccounted for," adding that the intervention could go on for a few days. On the other hand, ALB Securities research manager Yeliz Karabult told AA the markets expect a stronger reaction from the central bank. "The CB's direct intervention in the dollar indicates that the bank has reached a psychological threshold. So, a rate of 2.3 might be interpreted as being unacceptable," Karabulut said. She urged the CB to be "firm and clear" in its monetary policies, speculating that if the rate hits 2.3, it might go up as high as 2.47 and 2.50.
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