A mishap by Turkey's central bank was a reminder of last summer's currency turmoil
words have power. Three of them calmed the euro area’s debt panic in 2012. Another few started the taper tantrum that upset emerging markets in 2013.
In September the central bank reasserted itself, increasing interest rates to 24%, where they have stayed since. The combination of tighter money and a cheaper currency curbed import spending and encouraged exports. As a result, Turkey’s current-account deficit has narrowed far more swiftly than even the government had envisaged. Although its import bill is hardly the only claim on its foreign earnings , the lira was relatively stable from December to February.
Mr Erdogan’s party, which lost in most of the country’s big cities, has so far refused to accept its narrow defeat in the Istanbul mayoral contest. Citing alleged irregularities, it has asked for a new vote. That would trigger yet more political turmoil, which could bring protesters onto the streets and send foreign capital running for the exit.
None of this has helped the lira. On March 21st the central bank revealed it had burned through $6.3bn of its net reserves in a fortnight, presumably in an undeclared effort to prop up the lira. After the news spooked investors, the government squeezed the offshore lira market, making it harder for foreign speculators to borrow the currency in order to sell it.
France Dernières Nouvelles, France Actualités
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