(Bloomberg) -- The Turkish lira gained on Monday after the central bank took a series of steps to tame rising demand for foreign currency.
The lira appreciated 0.7% and was trading at 33.9161 per US dollar as of 3:45 p.m. in Istanbul. In a sign of easing pressure, traders at the Grand Bazaar in the city were selling dollars at a lower rate than the interbank market rate. Lira overnight rates offshore also dropped below 50%, falling from 61% last week, in a signal that overseas investors were buying the currency again.
The central bank rolled out a slew of new measures to boost lira deposits and tighten liquidity late Thursday as markets closed for a public holiday. Among the measures were increasing banks’ monthly growth targets to boost the lira’s share in total deposits; including corporate FX-protected accounts in the calculation of the total target for the transition to lira deposits; and increasing the ratio for maintaining lira required reserves in blocked accounts by 5 percentage points.
The measures came after increased demand for foreign currency sent the lira down by the most in five months in August. State banks have increased FX sales to meet the higher demand, selling at least $10 billion in August, according to traders who spoke on the condition of anonymity, citing institutional policy.
“The central bank’s latest steps aim to both help drain some excess liquidity, while possibly also aiming to limit domestic corporates’ recent shift to foreign currency from FX-protected accounts,” said Onur Ilgen, head of treasury at MUFG Bank Turkey.
The jump in demand in August put investors including Goldman Sachs Group Inc. on alert for further erosion in the value of lira assets. Although the central bank has repeatedly said it does not hold a specific target for the Turkish currency, maintaining a positive real interest-rate profile on the lira is important in its fight against inflation.
Accordingly, officials have been trying to encourage more savings in liras by keeping monetary policy tight and ensuring deposit rates are attractive. Last week, offshore rates jumped as dollar sales by state lenders and the unwinding of carry positions squeezed lira liquidity abroad.
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