Turkish lira crisis

Lira falls after Turkey central bank governor dismissed

Turkish Lira
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On Saturday,Turkish President Tayyip Erdogan dismissed central bank governor Murat Cetinkaya, causing the lira to fall 1.6% on Monday.

While no official reason has been given for the sacking, there have been reports of disagreements over interest rates.

Mr Erdogan had long called for interest rates to be lowered, describing them as the "mother and father of all evil", but Mr Cetinkaya had refused.

Now investors are concerned about the central bank's independence and how political interference will affect monetary policy.

"His removal speaks to Erdogan's insistence on imposing his diktats on monetary policy, and more broadly, it suggests tight presidential control of economic policies," said Phoenix Kalen, EM strategy director at Societe Generale.

Lira still falling

Turkish lira
Reuters

The Turkish lira is still falling - today it fell by 1%, after dropping 5% on Thursday, due to a return of liquidity to a key London market.

Finance Minister Berat Albayrak told Turkish broadcaster NTV on Thursday that Turkish banks were providing billions of lira to foreign markets.

He added that the normalisation in market conditions in both Turkey and London had begun.

The Turkish liquidity squeeze pushed the London swap rate to a record 1,200% on Wednesday but it is now back to a more normal 27% today.

Turkish President Tayyip Erdogan told young voters on Thursday that some banks were playing a game with the currency ahead of local elections on Sunday.

Numerous reports this week suggested the Turkish government had ordered its banks to keep foreign investors from exiting lira trades ahead of the elections.

Turkish lira under pressure

Turkish lira
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The Turkish lira plunged by as much as 5% against the dollar this morning.

This week, Turkey has been directing its banks to withhold lira liquidity from the London market, in order to defend the currency until after local elections on Sunday 31 March.

The Turkish government had apparently also ordered its banks to keep foreign investors from exiting lira trades, according to reports.

That's why the London overnight swap rate rocketed to 1,200% on Wednesday - the highest rate on record - but that is now back towards 50% amid signs that Turkish banks have started provided lira to the market again.

Turkey 'making it impossible' to sell the lira

Turkish lira
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The Turkish government has come up with an innovative way to prevent its currency from falling - make it impossible for foreign investors to sell the lira.

Four bankers have told Bloomberg on condition of anonymity that Turkish banks are under pressure not to provide liquidity ahead of local elections on 31 March, meaning that many foreign hedge funds are trapped in lira trades.

In the weeks leading up to and after President Recep Erdogan's election win in June 2018, the lira sunk to record lows.

By August the currency had lost over 34% of its value against the dollar, due to fears Turkish firms would struggle to repay loans, as well as an increase in US tariffs on Turkish steel and aluminium.

Turkish growth worst since attempted coup

The Celsius Library in the Aegean region
Reuters

Turkish economic growth dwindled to 1.6% year-on-year in the third quarter of 2018, falling short of estimates of 2%, due to its currency crisis and soaring inflation

This is the worst performing quarter since the third quarter of 2016, following the attempted military coup against President Tayyip Erdogan.

A sell-off of the lira since January has driven up the costs of food and fuel, forcing Turkey's central bank to raise interest rates to 24%.

Erdoğan takes aim at 'independent' central bank

Turkish President Recep Tayyip Erdoğan
Reuters

Turkish President Recep Tayyip Erdoğan is not pleased with the country's central bank after it defied him on Thursday to raise the interest rate to 24%.

President Erdoğan said: "Yesterday the central bank issued the constantly-debated interest hike, and at a very high rate. They talk about the independence.

"There you go, independence. We will see the outcome of the independence."

He added: "I am personally patient right now but this patience also has limits."