Turkey tells banks to slow FX buying in defense of lira

Bloomberg

Wed, May 22, 2019 - Page 10

Turkey told banks to wait one day before settling some large foreign-currency purchases, the latest move to defend the Turkish lira as Turkish President Recep Tayyip Erdogan’s party seeks to keep control of Istanbul in a controversial rerun of local elections.

The Turkish Banking Regulation and Supervision Agency told lenders to settle all retail transactions valued at US$100,000 or higher one working day later, instead of the current practice of doing it on the same day, according to a document sent to banks on Monday, which was seen by Bloomberg and verified by three bankers.

The lira was down 0.6 percent against the US dollar at noon yesterday.

Turkish authorities have become more interventionist in the markets, drawing criticism from investors, after a series of crises turned the lira into one of the world’s weakest currencies.

It has been battered by escalating tensions with the US and by the economy’s slide into recession after a borrowing binge by Turkish business — much of it in US dollars and euros — turned sour when the currency crashed last year.

The turmoil contributed to losses for Erdogan’s party in March’s local elections — including its stronghold of Istanbul, the country’s biggest city, where the mayoral vote is to be repeated next month after an opposition victory was annulled due to what authorities describe as electoral fraud.

Before the original vote, banks were pressured not to provide liquidity to foreign fund managers seeking to pull out.

Last week, Turkey imposed a 0.1 percent tax on currency sales, the first such charge in more than a decade.

The measures are creating “a gradually less liberal capital account, which is not the ideal signal to send to local retail deposit-holders and foreign investors,” said Inan Demir, an economist at Nomura PLC in London.

Regulators have also announced probes into banks, including JPMorgan Chase & Co, that have been blamed for “misguiding” markets with research that recommended selling the lira.

Turkish authorities are said to be leaning on local banks to buy more sovereign bonds, as the government turns to a widening budget deficit to help pull the economy out of recession.

The slide in economic growth has encouraged Turkish households and companies to turn their savings into US dollars and euros.

They have added about US$20 billion in hard-currency bank deposits this year, taking the total to more than US$180 billion — close to a record high.