5 Min Read
* Lira falls more than one percent on Friday
* Central bank liquidity steps fail to reassure
* Growth seen at 3 percent in 2016 - minister
By Daren Butler
ISTANBUL, Jan 13 (Reuters) - Turkey will root out anyone found to have manipulated foreign exchange markets, an adviser to President Tayyip Erdogan said on Friday, as the lira headed for its biggest weekly decline since the aftermath of a failed coup last July.
The lira shed more than one percent against the dollar as the central bank's efforts to tighten liquidity and calls from President Tayyip Erdogan for Turks to sell dollars failed to reassure investors.
"The puppets, and the hands which manipulate them, must be found," presidential adviser Bulent Gedikli said on Twitter, adding that there was no risk in Turkey to justify the lira being at its current levels.
On Friday, Erdogan again called on Turks to convert their foreign currency into Turkish lira, repeating a call he has made several times since the recent lira slide began.
"I am calling on my people not to save foreign exchange under their pillows, to convert to Turkish lira. Markets will be relieved if that happens," Erdogan said.
"We agreed with some countries to trade in local currency - the pressure from forex on lira will be lighter when these agreements are implemented."
The central bank tried to support the currency for a second day by not opening the one-week repo auction through which it usually funds the market with lira.
"By not opening a one-week repo auction again today the central bank is continuing (veiled) monetary tightening," said Is Investment economist Muammer Komurcuoglu, but he said the market was focused on whether the central bank would raise interest rates at its next meeting on Jan. 24.
Later on Friday, the bank made another move to support the lira, by cutting interbank borrowing limits to 11 billion lira ($2.93 billion) with effect from Jan. 16 and said it could cut some repo market funding.
In a statement, the central bank said banks were reminded that they could meet their needs from the late liquidity window without limits, at a rate of 10 percent.
The lira has lost as much as 10 percent against the dollar since the start of 2017, making it the worst-performing major currency of the new year. Concern over political and economic stability is being compounded by doubts about whether the authorities will take decisive steps to stabilise it.
It firmed to 3.7250 by 1725 GMT against the U.S. dollar following the bank's statement after closing at 3.7615 on Thursday. The currency dropped to a record low of 3.9417 on Wednesday and has lost almost a quarter of its value in the six months since the failed coup attempt on July 15.
Economists say the central bank needs to raise interest rates sharply to prevent further falls. But the bank is reluctant to make such a move, with Erdogan and the government preoccupied by slowing economic growth and eager for lower borrowing costs to spur investment.
Growth in 2016 was around three percent, Economy Minister Nihat Zeybekci told the state-run Anadolu news agency on Friday, a far cry from the high single-digit rates on which Erdogan built his reputation as prime minister from 2003-14.
Erdogan and the government are keen to prevent the economy losing too much momentum as the country prepares for an expected referendum in the spring on constitutional changes that would create a full presidential system and hand him greater powers.
Zeybekci said the central bank has many instruments to counter speculative moves in the lira and said its hands were not tied, although he said that it would be wrong for it to intervene by directly selling forex.
"In the period ahead we will see the lira returning to a normal trend as hope in the speculative moves is lost," he said.
Erdogan accused Turkey's enemies on Thursday of using currency speculation to try to topple the state and urged the central bank to "thwart these games", saying it had all the tools it needed.
He repeated his call to Turks to sell foreign currency, urging a "sense of national mobilisation", and evoked the July coup attempt, when people took to the streets to block tanks. (Additional reporting by Tuvan Gumrukcu and Ece Toksabay; Editing by Nick Tattersall, Larry King)