Turkey Asks Banks to Slow Dollar Purchases Until Next Week

According to Bloomberg, Turkey’s central bank asked commercial lenders to refrain from carrying out large dollar purchases on behalf of their corporate clients until Monday, according to people familiar with the matter.

As per the news, regulators are trying to ease the pressure from firms’ efforts to accumulate foreign currency at the end of the year. The central bank declined to comment.

The lira was trading 0.1% lower at 18.7136 per dollar as of 2 p.m. in Istanbul, set for the lowest weekly close on record, according to data compiled by Bloomberg. The currency’s 29% decline this year makes it the worst performer among emerging market peers after the Argentine peso.

Turkish policy makers see the lira’s stability as key to rein in consumer prices after inflation peaked at over 85%. The currency’s weakness mostly down to two rounds of interest rate cut cycles that were carried out last year and in 2022, fanning inflation.

Turkey’s Central Bank Warns Lenders Against Higher Deposit Rates

The monetary authority issued a separate instruction to stop lenders from using derivatives and options that eventually allow lira deposits to create new demands for FX, according to a central bank circular seen by Bloomberg.

Recent Policy

The Turkish central bank lowered its policy rate by 500 basis points to 9% during a four-month long easing cycle that came to an end in November, despite inflation at 17 times the official target of 5%. President Recep Tayyip Erdogan has pushed for those rate cuts, which he believes will boost economic output and exports.

Governor Sahap Kavcioglu has said higher investments will eventually result in a balanced current account, stabilizing consumer prices in the long term.

The monetary authority has enlisted additional measures to support the lira and channel new credit into high priority sectors, such as manufacturing. Those measures and currency interventions kept the lira in a narrow trading range over the past three months.

Market Metrics

  • 5-year CDS -1 bps to 518bps
  • Borsa Istanbul 100 Index -1.2% to 5,365.63
  • U.S. Treasury 10-year bond yield 1bps to 3.82%
  • Brent crude -0.4% $83.97 per barrel

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