Turkey’s BRSA Lifts Lira Trading Ban on Citi, UBS & BNP

Turkey’s BRSA Lifts Lira Trading Ban on Citi, UBS & BNP
May 12, 2020

 

The Turkish lira gained ground against the greenback to trade at 7.07 on Monday after the country’s Banking Regulation and Supervision Agency (BRSA) removed prohibitions on Forex trades with the lira by Citibank, BNP Paribas, and UBS as the three banks met their lira obligations.

The London-based financial organizations were accused of manipulating the lira by quickly purchasing overseas currencies using the country’s currency, prompting the BRSA to impose a percentage limit on the currency swap trades.

Across the globe, governments sell their native currency and purchase other country’s currencies to ensure exchange rate stability. In the case of an export-driven economy, a government will make sure that their currencies do not strengthen (against euro, dollar, and pound) beyond a certain level so that exports remain competitive. In case a country imports more than it exports, which implies a trade deficit, the government will prefer to keep its currency stronger. That will enable importing goods from other countries at a relatively low price.

In the case of Turkey, the London based financial institutions bought Turkish lira on credit and used it to purchase the greenback. The US dollars were then used to buy other currencies. This is an indirect way of betting against the lira, which has been losing value continuously. This process of purchasing a huge amount of US dollars using on-credit lira’s was happening before the country was heading for local elections. Once the elections were concluded, the financial institutions ended up in trouble as they were unable to find enough lira because the BRSA had already initiated action against the exchanges that were behind the depreciation of the lira.

Having failed to meet the lira liabilities, the London-based financial institutions attempted to purchase the lira in the London financial market, with interest rates surpassing 1,000%.

Tatliyer, a researcher at Istanbul-based think tank SETA, commented on the situation by saying, “The speculators tried to buy dollars in exchange for liras and on the account of having no money to buy liras at the first place.”

Turkey’s banking regulator ordered the aforementioned three central banks, which were found to have involved in the manipulation of the lira, to stop lira based transactions after the currency hit 7.27 against the greenback last Thursday, the lowest level seen during 2008-09 financial crisis. The BRSA explained that the decision was made after the three banks failed to meet their lira obligations. The currency had already lost about 18% following the outbreak of the Covid-19 pandemic, which has infected over 130,000 people in Turkey.

The concerns of Forex market participants were aggravated after a statement made by a US Federal Reserve policymaker was understood as a refusal to provide a Fed swap line to support Turkey’s drained reserves. The country, which is on the verge of entering into a recession in less than two years, had requested the Federal Reserve and several central banks for urgent funds as its Forex reserves had declined to about $28 billion, from $40 billion earlier this year.

Last week’s data indicated that the gross Forex reserves of the country’s Central Bank [The Central Bank of the Republic of Turkey (CBRT) Türkiye Cumhuriyet Merkez Bankası, TCMB] stood at $51.46 billion as of May 1st, a decrease from $52.66 billion in the earlier week. The Central Bank’s gross reserves hit a record high of $115 billion in 2013. By the end of February, the country’s short-term Forex debt was roughly $122.50 billion. Tatliyer pointed out that the prevailing Forex account volume is over $200 billion by the end of April.

Along with the removal of restrictions on the three banks, the Turkish government has also relaxed some of the Covid-19 related lockdown proceedings, with textile shops, shopping malls, and hairdressers being permitted to re-open.

On the economic front, the unemployment rate in Turkey fell to 13.6% in February 2020, from 14.7% in the similar month last year. The number of unemployed people decreased 502,000 to 4.228 million. However, the labor force participation rate fell to 49.9%, from 52.5% in the year-ago period, and the employment rate fell to 43.1%, from 44.8%.

The removal of the prohibition on the London-based banks, measures taken to re-open economy and drop in the unemployment rate is expected to keep the lira range-bound with a slight bullish bias against the greenback in the short-term.

lira - technical analysis - 12th May 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


Related Articles

A Corrective Rally Seems Likely for CAD

  The Canadian Dollar (USD:CAD) has declined significantly over the past two years as the USD rallied from below parity

Decline in Retail Sales Turns the Canadian Dollar Weak

  The Canadian dollar tumbled against its main rivals on Friday as economic data indicated that retail sales dropped in

Greenback Strengthens on Fed Rate Hike Speculation

  The wildfire in the Alberta region not only resulted in a contraction of the Canadian economy in the second-quarter,