* Lira has slumped 24 percent since failed July coup
* Central bank lowers forex required reserves
* Deputy PM says economy under attack
(Adds central bank statement, lira losses stemmed)
By Daren Butler
ISTANBUL, Jan 10 The Turkish lira slumped to new
lows on Tuesday, passing 4.0 to the euro for the first time and
extending a slide since the start of the year, as a deputy prime
minister repeated a warning that the economy was under attack.
Islamic State and Kurdish militant bombings, an economic
slowdown and political uncertainty over plans to bolster
President Tayyip Erdogan's powers have all unsettled investors.
The central bank's reluctance to hike interest rates to stem the
lira's falls has only compounded the concerns.
The bank responded to the lira slide by cutting forex
required reserves, in a move adding $1.5 billion liquidity to
the financial system, and vowed additional steps if necessary.
The statement helped stem the lira losses.
The lira hit a low of 3.7870 against the dollar,
from a close of 3.7130 on Monday, bringing losses since a failed
coup in July to 24 percent. It stood at 3.7575 at 1137 GMT after
the central bank comments, still a daily loss of 1.2 percent.
"Instead of tightening monetary policy directly, the Bank
prefers to tighten TL liquidity conditions and ease FX liquidity
conditions, which might be perceived as a smoothening step, but
might not reverse the actual course," said BGC Partners chief
economist Ozgur Altug.
The lira also hit a low of 4.0054 against the euro
, from a close of 3.9231 on Monday. It stood at 3.9740
after the central bank statement.
Deputy Prime Minister Nurettin Canikli, who has said the
economy was being targeted by "sabotage and attacks", singled
out a report from ratings agency Moody's saying banking profits
would be hit by increased non-performing loans.
"This is actually an attack. They will not be able to
succeed in any way," he said in a speech in Ankara. The Moody's
report had no validity and there was zero risk of the banking
sector's asset quality worsening, he added.
Erdogan's demands for lower borrowing costs to boost growth
are seen as constraining the central bank's ability to raise
rates. Those demands are unlikely to abate after the economy
shrank 1.8 percent in the third quarter.
The central bank (CBRT), which left rates on hold last
month, is expected to come under fresh pressure from financial
markets to raise them when it meets on Jan. 24.
"(The) lack of policy reaction keeps the depreciation
pressure alive, as CBRT remains put and does not react either
through lira or FX liquidity policy tools," said Turk Ekonomi
Bank strategist Erkin Isik.
Plans for constitutional reform that would create an
executive presidential system, handing Erdogan more powers,
meanwhile passed another hurdle on Tuesday when parliament voted
to debate details of the proposal.
(Reporting by Nick Tattersall, Tulay Karadeniz and Nevzat
Devranoglu; Writing by Daren Butler; Editing by Ece Toksabay and