May 21 2019

Turkish lira falls after banking watchdog imposes forex settlement delay

The lira fell against the dollar after the Turkish authorities instructed banks to delay the settlement of some purchases of foreign exchange, raising concerns about possible capital controls.

The lira dropped by 0.8 percent to 6.06 per dollar at 11:16 a.m. in Istanbul, taking losses this year to almost 13 percent.

Turkey’s finance industry watchdog told banks in a letter late on Monday to postpone settlements of retail foreign currency purchases of more than $100,000 by one day. The move was the latest in a series of unorthodox measures taken by Turkey to stem losses for the lira, which fell almost 30 percent of its value against the dollar last year due to an overheating economy and a political crisis with the United States.

“The most-savvy accounts might buy forwards. The nervous might buy much more FX, because maybe this 1-day delay becomes 1 week or 1 month,” Charles Robertson, global chief economist for Renaissance Capital, said in comments on Twitter.

Investors in Turkey are calling on the government to abandon short-term fixes to the economy and implement a series of structural reforms and tackle a mounting pile of bad loans on banks’ balance sheets. Banks have borne the brunt of the fallout of the currency crisis as companies struggled to make repayment on their foreign currency loans.