Turkey's Central Bank took new measures yesterday to control the rising trend of the euro and the dollar against the lira. The bank has announced that foreign exchange reserve requirement ratios have been decreased by 50 basis points for all maturity brackets to provide $1.5 billion to the financial markets. Thanks to the announcement by the bank, the lira started to recover after seeing a record high 3.78 earlier in the day.

"The Central Bank of the Republic of Turkey (CBRT) closely monitors the excessive volatility in the markets and will take necessary measures against unhealthy price formations that are inconsistent with economic fundamentals," said the bank in a statement released in the afternoon.

Accordingly, banks' borrowing limits at the Interbank Money Market established within the CBRT have been lowered to TL 22 billion ($5.8 billion) to be effective as of today. Moreover, foreign exchange reserve requirement ratios have been reduced by 50 basis points for all maturity brackets. With this revision, an additional liquidity of approximately $1.5 billion will be provided to the financial system.

"Developments in markets are monitored closely and if deemed necessary, additional steps may be taken in order to maintain price stability and financial stability," said the statement.

The dollar rose over 3.78 against the Turkish lira early Tuesday as the currency slumped to a further record low. The dollar-lira exchange rate rose 1.4 percent compared to Monday's close of 3.7245, pushing the dollar's overall appreciation against the lira so far this year to more than 7 percent. On reaching 3.78, the rate retreated slightly to 3.74 thanks to the CBRT. Along with the dollar, the euro also hit the 4.0 level against the lira yesterday. It eased to 3.98 later in the day.

On Monday, the dollar advanced to a high of 3.7449 against the lira - the highest since the new lira was introduced in a 2005 revaluation - amid anxiety in the domestic market over proposed constitutional changes. Analysts believe the debate on constitutional reform, including a shift to a presidential system, will steer the market's course in the near term.

As some economists suggested the CBRT should increase interest rates at the bank's January meeting to control the exchange rate parity, Deputy Prime Minister Nurettin Canikli said it will be up to the central bank to decide on rates and it would be unacceptable to pressure the bank in this regard. Canikli further underlined that the real sector will not be affected negatively by these developments and the government has taken all necessary measures to ensure firms do not face exchange rate troubles.