ANKARA, Turkey (AFP) — Turkey’s central bank on Monday vowed to use all the tools at its disposal to “maintain price stability”, after a slide in the lira last week amid investor concerns over domestic monetary policy.

The lira lost around 5.2 per cent in value against the greenback on Friday, its worst day since a currency crisis last year triggered by a US diplomatic spat and sanctions.

The bank said it “will use all monetary policy and liquidity management instruments to maintain price stability and support financial stability, if deemed necessary”.

After the bank’s statement on Monday, the lira pared back some of its losses. At 12:55 GMT the lira was 5.66 against the dollar, up nearly 1.8 per cent on the day.

The bank suspended one-week repo auctions on Friday for an undefined period, after markets reacted to an unexpected drop in the bank’s foreign currency reserves.

Analysts described the move as monetary policy “tightening by the back door”.

In a bid to ease investor concerns, central bank governor Murat Cetinkaya on Monday said the bank’s fundamental policy was to “sustain and strengthen reserves”, State news agency Anadolu reported.

Cetinkaya told the agency in an interview that fluctuations in reserves were “not unusual”, amid speculation the fall could be a result of the bank propping up the lira.

The Banking Regulation and Supervision Agency (BDDK) and the Capital Markets Board (SPK) on Saturday said they launched probes into JP Morgan over a report by the investment bank’s analysts which apparently recommended shorting the lira on Friday.

The BDDK issued two statements on Saturday which said there had been complaints over “misleading and manipulative” guidance from JP Morgan and other unnamed banks.

President Recep Tayyip Erdogan on Sunday said that Turkey would “crack down strongly on the banks who conduct such manipulations” before local elections on March 31.

Representatives of JP Morgan declined to comment.

Cetinkaya also told Anadolu that the bank’s monetary policy was shaped by a commitment to bring inflation down to single digits as soon as possible.

Inflation in February fell below 20 per cent to 19.67 per cent after hitting a 15-year high of more than 25 per cent in October 2018, as the US-Turkey row shook the Turkish currency.

Although the lira has made up much of the losses since August, in recent weeks the currency has been performing badly, remaining well above five against the dollar.