The Turkish central bank has stepped in to rescue the lira from a new collapse, following sharp drops in the past weeks.
The central bank said on Tuesday it was opening a 90-day repo auction with a volume of 15 billion liras and an interest rate of 8.25 percent, 150 basis points below its policy rate. The repo was in addition to its regular one-week repo with a rate of 9.75 percent.
The currency has shed as much as 10% so far this year.
The central bank’s move attempts to support the lira and enable the Turkish economy to deal with the consequences of the COVID-19 outbreak.
Last week, Turkish President Recep Tayyip Erdogan announced an economic package worth 100 billion liras (around USD15 billion) to tackle the impact of the coronavirus outbreak on the Turkish economy.
He introduced the Economic Stability Shield Program, which includes temporary tax exemptions, as well as several financial and banking facilities.
Meanwhile, a 2 percent contraction is likely in Turkey’s gross domestic product this year, Britain-based Economics said in a research note.
They added that the economic damage will be worse than expected, given that production will drop sharply in the second quarter. Even if the pandemic was contained, all economies in the region will see shrinkage this year.
Further, Fitch's Director Douglas Winslow said that Fitch Ratings has greater confidence that Turkey’s economic growth is recovering in the near term. “In 2020 we expect a recovery, with GDP growth going to 3.9 percent this year,” Winslow added.
Pointing to Turkey's recovering economic outlook, he said: “We also expect investment to return to growth this year of around 3 percent.”
Fitch Ratings rated Turkey at BB-/Stable last February.
