Turkey's central bank Thursday sought to reassure investors over its foreign currency reserves after the sharpest drop in the local lira since a spat with the United States triggered a currency crisis last year. The lira slid nearly 6 percent Friday, prompting President Recep Tayyip Erdogan to call for a crackdown on market "manipulations" and Turkish regulators to open a probe into investment banks.
After recovering losses early this week, the lira fell again around 5 percent to 5.59 against the dollar on Thursday morning, prompting Erdogan to blame fluctuations on a Western plot to undermine Turkey.
Lira turmoil is sensitive for Erdogan before Sunday's municipal elections when his ruling AKP party is battling to win major cities after the economy slipped into recession for the first time in a decade. In an interview with state-run Anadolu agency, central bank governor Murat Cetinkaya said the bank continues to implement its reserve-building policy.
"Although reserves may fluctuate due to periodic factors, there has been a consistent uptrend in reserves in the medium term," Cetinkaya said.
He said gross reserves had increased across all items by $4.3 billion and by March 27 reached $96.7 billion.
Erdogan on Thursday described the currency fluctuations as part of a plot by the West to "corner Turkey, particularly by the US". "We should discipline the speculators in the market," he said.
The Turkish leader also repeated his demand the central bank cut interest rates to help curb inflation that is still in double digits. Analysts said worries over reserves and attempts by the Turkish authorities to control short selling of the lira had also spooked investors.
"The Turkish policy response since the lira sell off last week has been extreme and I think ultimately will prove counterproductive," said Timothy Ash, senior sovereign strategist at BlueBay Asset Management.