Central Bank's hands is not tied, Turkey's Şimşek points out

A Turkish deputy prime minister said Friday the country's Central Bank was capable of taking action against speculative attacks amid the recent volatility in foreign exchange rates.

"Its hands are not tied [...] It will do what is necessary," Mehmet Şimşek said in a televised interview on private news channel NTV.

He also said the bank had the full support of the government, adding that its decision to hike interest rates on Wednesday in order to support the Turkish lira had proved its independence.

"The Turkish Central Bank has taken a strong step that had immediate effects [on the market]," Şimşek said.

On Wednesday, the Central Bank of the Republic of Turkey hiked late liquidity window interest rates, namely the lending rate raised from 13.50 to 16.50 percent (the borrowing rate was kept at 0 percent).

In recent months the Turkish lira has been losing ground to the U.S. dollar. The USD/TRY rate has risen nearly 20 percent since the beginning of this year.

The dollar/lira rate hit an all-time high -- 4.93 -- just before the bank raised rates. Last year, one dollar traded for 3.65 liras on average.

The bank on Thursday raised the upper limit of its forward foreign exchange sale position for the second quarter of this year.

On Friday, the Central Bank fixed foreign exchange rates for rediscount credit repayments for export.

Şimşek said the Central Bank's step was "effective", but, on Thursday there were one or two "negative" developments that partly limited its effect.

"One of them is that lies about Halkbank deliberately arose again yesterday. Halkbank denied it. If you look at Halkbank's market value and capital, a $49 billion of penalty was talked about. It is totally fake news," he added.

He added these "fake news" "unavoidably" affected the citizens.

Halkbank on Thursday said that "fake news" about a considerable fine allegedly issued by the U.S. authorities against the bank had recently spread on certain social media accounts in a way to deceive the public and investors and to discredit the bank, according to a statement sent to Turkey's Public Disclosure Platform (KAP).

"Neither has Halkbank been party to the case settled in the U.S. on May 16, 2018 nor is there any administrative or financial decision taken against the bank by the Court.

"Halkbank has not received any notification of penalties issued by relevant authorities in charge of monitoring the international U.S. sanctions, either," it said.

In January, a New York jury found Hakan Atilla, a former deputy CEO of Halkbank, guilty on five counts related to conspiracy and bank fraud -- including alleged Iran sanctions violations -- but acquitted him of a money laundering charge.

"The second issue is that yesterday, the U.S. included Turkish citizens and companies into the sanctions that were imposed against some of the Iranian companies and citizens. It also somehow wrecked the mood," Şimşek said.

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) on Thursday designated Turkish citizen Gülnihal Yegane and a network of Istanbul-based firms for enabling designated Iranian airline Mahan Air to secure key aviation goods and services and sustain its fleet of Western-manufactured aircraft.

Şimşek added that impact of the bank's steps were also related to global developments which also affect other emerging markets.

He said the election campaign period and certain concerns about fiscal policy were also factors affecting the exchange rates.

Şimşek said concerns about Turkey's fiscal policy due to elections on June 24 were null as the country will maintain a "strong" stance on fiscal policy.

Stating that the bank's steps will be effective in 10 days if new issues do not occur, Şimşek said rumors fomented outside of Turkey were aimed at disturbing the electoral process.

Şimşek added that the Turkish banking sector had the capacity to absorb huge shocks.

"The profitability of [Turkish] banks continue. The sector maintains its durability," he said.

He also highlighted that Turkey will not change its exchange rate regime and not step back from a rule of law-based market economy.