Turkey's central bank bids to boost lira as markets meltdown spirals
Turkish policymakers made their first move to bolster the financial system and investor confidence amid a plunge in the lira. The currency, stocks and bonds extended their decline yesterday.
Promising to "take all necessary measures," the central bank in Ankara lowered the amount commercial lenders must park at the regulator and eased rules that govern how they manage their lira and foreign-currency liquidity. While there was no mention of higher interest rates, it said all options were on the table. "The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary," it said.
It's all part of an action plan announced by Treasury and Finance Minister Berat Albayrak late on Sunday to respond to market tumult.
He also rejected capital controls as an option to stem outflows of hard currency and vowed to crack down on those he said were spreading damaging rumours that deposits would be seized.
He has visited Kuwait and was expected to visit other Gulf Co-operation Council members seeking investment. The lira briefly trimmed losses after the central bank statement but weakened about 6.2pc to 6.8279 to the dollar at 5.40 pm in Istanbul.
The yield on two-year government bonds jumped 94 basis points to 25.74pc, the highest level since the global financial crisis in 2008, while the benchmark stock index dropped 2pc.
As the cost of insuring Turkish debt against default over five years surged more than 100 basis points to 537 basis points, the Treasury announced it wouldn't sell 10-year fixed- coupon debt as scheduled and will offer only floating- rates notes. The currency has lost about a quarter of its value against the dollar since the US sanctioned two ministers in President Recep Tayyip Erdogan's government in a spat over the continued detention of an American pastor in Turkey, pushing the economy toward a full-blown financial meltdown.
After Albayrak's comments on Sunday, the banking regulator put restrictions on dollar-lira swaps in an attempt to make it harder for offshore investors to bet against the currency.
The use of fringe tools is unlikely to be a "game changer" for the lira, Global Securities analysts including research director Sertan Kargin said.
"The latest liquidity measures could provide some buffer to cushion the lira against speculative moves," its report said.
But the move "remains insufficient to provide full protection for the lira in times of distress in the absence of an outright orthodox rate hike."
Over the weekend, Erdogan lashed out at the US, threatening to find new alliances and new markets for the economy's vast financing needs. He also took higher interest rates off the table and said Turkey wouldn't accept an international bailout.
Adnan Bali, CEO of Turkey's Isbank, said the regulator's move was well executed but needed to be supported by "technical decisions". (Bloomberg)