Turkish lira under pressure after rate rise

The Turkish currency was under pressure on Wednesday despite a decision by the central bank on Tuesday to raise its overnight rate by half a point to 7.75 percent.

The lira fell to 1.9572 to the dollar from 1.9492 at the close on Tuesday.

The lira has fallen by about 10 percent since February, when it was at a 12-month peak of 1.7460 lira to the dollar.

But it is still slightly above a 12-month low of 1.96590 lira to the dollar set in early July, forcing the central bank to take urgent measures.

The central bank's decision to raise its overnight rate follows recent intervention to defend the lira and is the latest sign of turmoil in emerging markets.

In a written statement on Wednesday, central bank governor Erdem Basci said: "The additional monetary tightening will be maintained everyday until further notice."

Basci also said the bank would sell a minimum of $100 million in foreign exchange auctions.

"As of today, a minimum of $100 million will be sold at 1630 local time (1330 GMT) on days when additional monetary tightening is applied," he said.

In July, when the lira fell heavily, the central bank announced urgent action to tighten monetary policy, curb credit and to use foreign reserves to buy the lira on the foreign exchange market which it did using substantial amounts.

The country is vulnerable to the recent slowdown in capital inflows and analysts say the economy is likely to take a hit from external financing conditions and particularly the changes in US monetary policy.

Analysts also express concern about the extent to which the economy is dependent on credit, and also about a deficit on the balance of payments current account.