Reports that the Turkish lira's swap rates are surging due to Turkish banks withholding lira liquidity from foreign banks are not true, the head of Turkey's banking association told Reuters on Wednesday.
Turkey's central bank Thursday sought to reassure investors over its foreign currency reserves after the sharpest drop in the local lira since a spat with the United States triggered a currency crisis past year.
Turkish lira funding costs tumbled on Thursday from the highest level in nearly two decades after investors offloaded the nation's assets in a bid to exit currency trades they've been unable to close all week.
Speaking to young voters in Ankara ahead of local elections on Sunday, Erdogan said Turkey had thwarted the attacks by the United States and the West on the lira and added that some banks were playing a game on the currency ahead of the vote. That raised concerns that the money that had poured Turkey to take advantage of the central bank's 24 percent benchmark rate would flee, hammering the lira before municipal elections on Sunday.
The Turkish lira is now down 1.5 percent versus the American greenback and is trading at 5.6442 as of just after 2:00PM UK time.
The lira had weakened to 5.8490 on Friday before settling at 5.7625, its lowest closing value since October.
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Inflation, in double digits since 2017, rose to almost 25 percent a year ago. In another echo of last year's crisis, when investors were spooked by his unorthodox economic views, the president renewed calls for lower interest rates despite double-digit inflation and a fragile lira. "As interest rates are brought down, inflation will fall", Erdogan said.
At its worst, the Turkish lira lost around 30 percent of its value against the USA dollar a year ago. As of 1510 GMT, it had clawed back some of its losses to 5.57.
"We should discipline the speculators in the market", he said.
Exchange rate fluctuations are an operation by the West, particularly the United States, to paint Turkey into a corner, President Erdogan said on Thursday, March 28, 2019.
While local banks are still keeping a lid on lira funding, foreign investors have been able to access the currency by selling holdings of Turkish bonds and equities, according to three bankers with knowledge of the matter.