ISTANBUL (Reuters) – The Turkish lira’s plunge slowed on Thursday, falling just 0.8% from a 7.2% plunge the day before, traders said, with the Turkish lira beating expected appointments. It is said to be closer to “normal” levels than before. A new central bank governor.
When the currency fell Wednesday, traders said it was a sign that authorities were deregulating the foreign exchange market. After stabilizing on Thursday, some believed authorities were stabilizing things again by pumping in more liquidity.
“They still defend the lira today,” said a banker who requested anonymity.
As of 1448 GMT, the currency is worth $23.38 against the dollar. It hit a record low of $23.3965 the day before, taking a 20% loss this year.
Reserve figures from Turkey’s central bank showed about $3 billion inflows into deposit accounts from abroad last week, bankers said on Thursday.
Turkey’s 5-year credit default swap (CDS) added 34 basis points from Wednesday’s close to surpass 500 basis points to reach 516 basis points in signs of caution, according to data from S&P Global Market Intelligence. bottom.
Yesterday’s lira fell its biggest since its historic crash at the end of 2021 after the central bank cut rates in the face of rising inflation as part of President Tayyip Erdogan’s unusual policies.
Economists said the lira’s plunge was a sign of Turkey’s move from state control to a free-trading currency, despite a number of restrictions and measures that have yet to be rolled back.
Traders said the yuan should not fall as much as Wednesday as it is nearing a level where foreign exchange reserves will no longer need to be defended.
“There is no panic atmosphere in the market like there was in the past when there were losses of this magnitude.
Tradeweb data showed that dollar-denominated bonds maturing in 2040 and 2045 were the biggest losers, dropping 1.2 cents, with other bonds posting similar losses.
Under Erdogan’s unconventional policies, the authorities play a direct role in the foreign exchange market, depleting tens of billions of dollars in foreign exchange reserves this year alone to keep the lira stable.
But Erdogan signaled a change of course over the weekend, following his reelection last month, by appointing former deputy prime minister Mehmed Simsek, who is highly regarded by foreign investors, as Turkey’s new finance minister.
Simsek later said economic policy had to return to a “rational” basis, and that there were “no quick fixes” in policy.
change of tack
As part of the policy axis, Erdogan is considering appointing a senior US-based finance executive, Hafizeh Gay Elkann, as central bank governor, Reuters reported on Monday.
Investors said they were waiting for the appointment as well as a possible emergency rate hike to about 25% from the current 8.5% ahead of the next central bank meeting scheduled for June 22. .
Erkann’s appointment would make him the fifth central bank governor in four years and would replace Sahap Kahchool, who has spearheaded Erdogan’s push for rate cuts since 2021.
Under pressure from a president who calls himself an interest rate “enemy,” Kafchool-led banks cut key interest rates from 19% to 8.5%, triggering a historic lira crisis in 2021 and pushing inflation to its highest level in 24 years. Exceeded the standard of 85%. % last year.
Amid policy easing, officials changed their foreign currency guides and tapped foreign exchange reserves to stabilize the lira until Wednesday’s decline.
“On behalf of Turkish policymakers, we believe that the lira correction is the end of the cycle for the time being, free use of foreign exchange reserves to defend the currency,” said Eric Meyerson, chief emerging markets strategist at the SEB. I am considering it,” he said.
He said the lira could reach 27 against the dollar by the end of the year. “This is a downward revision to the value of the lira and reflects the authorities’ expectations to ease some of the control over the lira,” Myerson said.
Data on Thursday showed demand surged through the election, pushing the central bank’s net foreign exchange reserves to a record low of minus $5.7 billion as of June 2.
Traders said reserves could enter an upward trend, but highlighted the threat posed to reserves by upcoming payments under a government scheme to protect lira deposits against foreign exchange depreciation. .
Additional reporting by Jonathan Spicer.Editing: Gareth Jones, Darren Butler, Hugh Lawson, Emelia Sitor-Matterise
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