Turkey has further tightened controls imposed on the lira as it pushes ahead with efforts to manage the country’s currency even as it cuts interest rates and seeks a return to fast-paced growth.
The banking regulator announced curbs on Sunday night aimed at limiting currency speculation by foreign traders after the lira weakened beyond 6 to the dollar on Friday — the first time that it has crossed the symbolic threshold since May.
The latest move expands controls introduced during a currency crisis that struck the country in August 2018. It lowers the size of currency swaps and other similar transactions between Turkish banks and foreign counterparties from 25 per cent of the bank’s regulatory capital to 10 per cent.
Turkish authorities have taken an increasingly interventionist approach to managing the currency since 2018, when President Recep Tayyip Erdogan took the helm of a powerful new system of governance and vowed to take a more active role in the country’s economic management.
Erdogan, a vocal opponent of high interest rates, has overseen a period of rapid monetary easing since July, even as accelerating inflation has created a negative real rate of return for investors.
Yet the Turkish president is keen to maintain stability in the currency, which for many Turks serves as a proxy of the country’s wider economic health — and also matters to a corporate sector that is loaded with foreign currency debt.
In an effort to keep the lira steady, state-owned banks have taken to selling dollars in the open market over the past year, while regulators have announced steps aimed at reducing short selling by foreign investors.
The interventions prompted Standard and Poor’s, the rating agency, to describe the country’s exchange rate regime as a “managed float” in a recent report.
While the measures have had some success by making it very difficult for hedge funds to bet against the lira, they have also deterred investors from holding Turkish assets. Data released at the end of January showed that foreign investors sold more than $3.3bn in Turkish bonds in the previous 12 months, according to Bloomberg, bringing their share in the local-currency debt market to a record low of 11 per cent.
In a further move, Turkey on Monday imposed new caps on the fees that could be charged by banks, a step that followed criticism by finance minister Berat Albayrak that some private banks were too focused on profit and were not doing enough to support the economy.