Turkish Central Bank Intervenes To Halt Record Plunge In Lira

Tyler Durden's picture

It was another bad day for the Turkish lira, which after plunging 5.8% in the first days of 2017, fell as much as 1.8% in early trading, dropping to a new all time low of 3.78 against the dollar, down nearly 7% YTD against the USD, pressured by a deteriorating economy, unpredictable terrorist and militant attacks, and a authoritarian president. The lira also passed 4 to the euro for the first time on Tuesday, with a deputy prime minister saying the economy was being targeted by "sabotage and attacks".

Market focus has turned on the lira as a result of Turkey's large external borrowing requirement which makes its currency one of the most vulnerable currencies to tightening by the Fed.

Not helping matters is that Turkish residents have been flocking to the stability of hard currencies, the opposite of what President Recep Tayyip Erdogan has been urging. As the following Bloomberg chart shows, deposits in foreign exchange for individuals and companies excluding banks rose for a third week, signaling a lack of confidence in the lira. It’s the biggest loser among world currencies so far in 2017.

Additionally, Turkish economic growth has remained sluggish and inflation is rising, yet the central bank has been under pressure from President Tayyip Erdogan not to hike interest rates. A series of gun and bomb attacks have heightened security concerns. On Tuesday the Turkish parliament voted to press on with a debate about constitutional reform to strengthen the powers of President Tayyip Erdogan.

"Nobody wants to be the last one in there and everyone is running for the door. There are no signs from the authorities that they are taking it seriously," said Jakob Christensen, head of EM research at Danske Bank. Christensen said the risk of further attacks was undermining the tourist sector, which is vital for the economy and balance of payments.

Making matters worse, and confirming the currency crisis is becoming one of credit, Turkish five-year credit default swaps rose four bps to 288 bps according to Markit data, a one-month high, and the yield premium paid by Turkish sovereign bonds over U.S. Treasuries on the JPMorgan EMBI Global Diversified widened out 4 bps to 377 bps.

And while the central bank's hand are largely tied as per Erdogan's decree that no rates are to be hiked, moments ago the monetary authority had no choice but to intervene when it cut FX required reserve amounts by 50 bps, which it said would boost liquidity by around $1.5 billion, citing "unhealthy" price formation. In a statement on its website, the central bank also said the that additional steps might be taken to protect price and financial stability if necessary.  It noted that it monitors “excessive volatility” in markets. The Cenbank also lowered commercial lenders’ total borrowing limits in interbank money markets to 22b liras from Wednesday without saying what the previous limit was.

While the lira spiked modestly higher in kneejerk reaction, if recent similar overtures by its pressured EM peers are any indication, this latest intervention should have a half life of about an hour before the modest gains are all gone.

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Arnold's picture

Are these guys reading "Chinese Economic Theory",

written by Krugman again?

Manthong's picture

I would not want to be shopping for a 62” Samsung 4K big screen in Istanbul nowadays.

SpanishGoop's picture

"Turkish Central Bank Intervenes To Halt Record Plunge In Lira".

So they got rid of uncle Erdo ?

Less costly.

 

Arnold's picture

I think he tried to get rid of himself a few months ago, wasn't it?

The Ottoman Empire is fuzzy to me.

And not in a cute way.

Arnold's picture

Sorry, I ment the New Ottoman Empire is Muzzy to me.

Fixed it for myself.

crakerman's picture

erdogie, erdogo, erdogan.........

Dien Bien Poo's picture

Heres the thing. As they spend dollars to catch a falling knife, the FX reserves are withered away and as a percent of import cover they are already at new lows. As imports become more expensive, that ratio ratchets lower still. They cant afford to intervene for long and the market is offered nly on Turkish risk generally. In fact anyone adding Turkey right now is purely speculative and hardly helps the malaise. I fully expect to see the Lira at 4 in a few weeks and at 5 or higher by year end. Modern day EM devals are no longer 25% (as per Mexico in 94). they are fully blown 100% trainwrecks. Sell Turkish bonds while you still can. If the Lira passes 4, there will be no bid.

 

sinbad2's picture

You're right, it's a copybook US economic attack.

The thing is, it will drive Turkey into the arms of Russia/Iran/China.

In the Chinese Government, they study Sun Tzu, in the US Government, they study Mr Magoo.

 

SeanInNYC's picture

You hardly need a foreign intervention to destroy the economy of a Third World nation turning inward, with a leader centralizing government control, and spending shit-tons more than they take in. Their own people know to hold onto USD instead of their own currency. They simply need to read the news about Greece, Venezuela and other banana republics to see the trajectory of nations whose economic planning consists solely of borrowing, borrowing, and more borrowing. Throw in some increasing Islamism, and the state their Islamic neighbors are in, who would have faith in the Turkish Lira?

They can turn to Russia and China, but getting different, politically-driven debtors doesn't fix the fundamental problems. Certainly it pushes off the neccessary tough decisions they will eventually need to take.

Latitude25's picture

Since the attempted zionazi coup Turkey has been cozying up to Vlad.  LOL buying hard currency's like the dollar?  The dollar is an illusion.  Smart turks buy gold.  For these reasons the lira is under attack.

Long memory man's picture

Could be to put pressure on Turkey to go along with the new Cyprus deal. Where is Vic Newland? this would make a very nice unsinkable aircraft carrier within striking distance on the Middle East maybe.

New ploy afoot

samjam7's picture

Of course it's related, why do you think Obama flew to Athens on his last trip to Europe (Cyprus) and why is now the Lira being hammered by 'Traders' oops market interventionists, again Cyprus and why does Cyprus matter? Well engery transport is a starting point but it's so much more than that...

moonmac's picture

Another hike Janet?

Release the Kraken!

JohnGaltUk's picture

I see soveriegn defaults on the horizon.

Kefeer's picture

When a nation like Turkey has played both sides of the fence; it never ends well for the people of that nation.  If the Libertards in our country would understand that simple principle applied within the country...well never mind, they are libertards for a reason. What's that smell; it is not turkey - its Soros?

 

White nationalism is the foundation of the nation made to be PC as racist, thus the label.  The reality is the Europeans came to flee from religious persecution (Christianity) and it has been under attack ever since.  Any culture that doesn't assimilate into the established culture will cause further division and we all loose.  All those who attack the moral principals of Christianity are on a fools errand of self destruction.  How can anyone hate that which is good and foundational to the nation and call themselves patriots?

back to basics's picture

Another day, another central bank intervention. 

I have news for the Turkish central bankers. Weakening your currency can be accomplished by your ability to print it in infinite amounts but supporting your currency is a fools errand because you can't print reserves.

The lira will continue to head lower until the Sultan cries uncle and returns to the open arms of the CIA. Everything else is noise.

UnschooledAustrianEconomist's picture

Yes, it's monetary warfare of the western bankers against the insurgent Turks.

Two enemies fighting? Popcorn, please!

HANGEMHIGHER's picture

How can fiat, (which is already worthless) fall in value?

GoldIsMoney's picture

Depends simply one one thing: trust (and the less trust the less value) that's the rule without exception. Would you trust Erdogan in any way? I guess I'd dare my luck with some crocodile or lion instead.

Maestro Maestro's picture

My Turkish friends,

Do what Turks do best and destroy the megalomaniac plans of the American, European and anti-Semite Jewish bankers again.
The solution is to bring gold back into the public monetary realm. This is how you do it WITHOUT actually risking your gold reserves in the process:

1) Declare publicly that the Turkish monetary base is backed by gold. This way, you thrust into the consciousness of the populations of the world that gold is money of the best kind, unlike paper/fiat money, WITHOUT actually risking your gold reserves by de jure making the Turkish Lira convertible to gold. Fiat money is a psychological construct: turn the psychology against it by plainly and publicly stating that pure fiat money is essentially an intrinsically worthless item.

2) Ask for immediate and unconditional repatriation of your 400 tons of gold supposedly held for you by the Bank of England, if I recall correctly. The Brits most likely sold it and they don't have it anymore, so that gold is lost to you anyway. Turn your stolen gold into a financial weapon of mass destruction thrust deep into the collective heart of the Western bankers who are attacking the Turkish Lira and thereby the Turkish state. Put the Western bankers' theft and fraud committed against the Turkish nation, on the public record thus expose the bankers and the Western governments that they control (the EU being the most obvious) as the filthy criminals that they truly are.

3) Kick the Americans out of the Incirlik airbase to weaken the Americans' grip on your nation and also to remove the risk of a Russian nuclear strike against Turkey by distancing yourselves from NATO.

Go Erdogan.

They give you no choice. You either win or you lose.
To win, you must FIGHT. I showed you how to do it without losing a drop of Turkish blood.

Fuck the Americans.

USA=ISIS

GoldIsMoney's picture

USA=ISIS

I don't think they are equal but twins of their minds. Kill, terror, kill, terror, kill, defame, lie, kill, lie, rob, steal, kill, terror ad infimum

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