« Turkish authorities asked banks to carry out foreign exchange transactions with corporate clients between 10 a.m. (0700 GMT) and 4 p.m. (1300 GMT) when the market is most liquid to help avoid large price swings, three bankers said on Tuesday » reports Nevzat Devranoglu, Jonathan Spicer and Ebru Tuncay in Reuters.
The step came as Turkey’s lira slid by more than 3% over four sessions to lows last touched in mid-December, when it was gripped by a currency crisis that rattled the emerging market economy and sent inflation soaring.
The central bank and the BDDK financial regulator made the request in the last few days for banks to conduct FX trades during the six busiest market hours, the three bankers told Reuters, requesting anonymity.
Separately, the central bank sent lenders a document, obtained by Reuters, clarifying how to apply reserve requirements to loans following its announcement of the new regulation last month.
The 50-page document was sent Friday. The April 23 announcement was meant to curb some lending after a sharp recent rise, and bankers separately said it sent overnight rates higher and prompted some confusion among lenders.
The central bank and BDDK declined to comment.
The moves mark the latest effort by authorities to stabilise the lira, which fell 44% against the dollar in 2021 and slid another 13% this year.
Under pressure from President Tayyip Erdogan, the central bank is determined not to raise its policy interest rate from 14%, despite annual inflation hitting 70% last month.
« The central bank is fighting a serious battle for the (lira), but the cost of keeping it steady … is increasing by the day, » said Ipek Ozkardeskaya of Swissquote.
« Of course, it is possible that there will be an ‘accident’ in low liquidity hours, » she said of the request to banks. « Let’s see how long they can carry on. »
EYES ON ELECTION
A series of unorthodox rate cuts late last year sparked the crisis. In response, authorities unveiled a lira deposit-protection scheme and costly forex market interventions.
The rate cuts sent commercial loan growth up to around 50% late last month, according to Turkey Data Monitor.
Erdogan – facing tough elections over the coming year – says a burst of lending, exports and a reversal of large current account deficits should ease prices.
Economists are sceptical and split on whether the central bank will hold or raise rates through this year, a Reuters poll showed.
The bank’s April rule change applied reserve requirements to the asset side of lenders’ balance sheets, rather than just to liabilities. It was meant to encourage job-creating loans and strengthen financial stability, it said. read more
The bankers told Reuters overnight loan rates later touched 35-40%, but data suggested corporates did not borrow that high.
Reuters, May 10, 2022, Nevzat Devranoglu, Jonathan Spicer and Ebru Tuncay