Turkish Lira: Recovery from historic low on government assurances

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Turkey TurkeyThe lira rose as much as 10% against the dollar reaching 10.25, its highest level in a month, before reversing course and trading at 11.395 at the conclusion of business.

The currency has recovered from a historic low of 18.4 on Monday, when it was down 60 percent year-to-date, concluding a week of unprecedented volatility and intraday swings.

Despite the recovery, risk measures are at all-time highs as concerns persist over the government’s anti-dollarization agenda, which might exacerbate inflation, add to public debt, and deplete foreign reserves if the lira continues to fall.

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Four sources claimed Turkey’s state banks sold a lot of dollars this week after President Tayyip Erdogan declared the government would guarantee some deposits against devaluation losses, echoing previous interventions. The interventions on Monday and Tuesday, according to one source, totaled $3 billion. The selling corresponded with a dip in the central bank’s foreign reserves, which fell by $6 billion in those two days alone, according to a second source.

The three major state banks — Ziraat Bank, Vakif Bank, and Halk Bank — did not respond to requests for comment on probable actions right away. The central bank did not respond to a request for comment right away.

According to Haluk Burumcekci, chairman of Istanbul-based Burumcekci Consulting, the central bank’s balance sheet indicates that foreign currency sales accounted for $5.5 billion of the drop in net reserves on Monday and Tuesday.

According to IHS Markit, the cost of insuring against a government failure using CDS burst above 600 basis points earlier this week, reflecting market worries, before sliding down to 593, still near all-time highs.

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