Turkish lira unmoved by swap deal, Erdoğan pledge to bolster currency

Turkey’s lira was little changed against the dollar on Wednesday after the central bank signed a currency swap agreement with the United Arab Emirates and President Recep Tayyip Erdoğan pledged to take further steps to make the currency more attractive.

The lira was trading down 0.5 percent at 13.6 per dollar at 12:33 p.m. local time. It has traded in a band between 13 and 14 per dollar since Jan. 5.

The Turkish central bank said on Wednesday that the swap arrangement with the UAE central bank is worth almost $5 billion. It had previously signed deals worth about $23 billion with the monetary authorities of China, South Korea and Qatar.

“Easy to spend other people’s money. Fine until everyone realises that their money is gone,” said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London.

The Turkish authorities are seeking the means to bolster the lira’s value. The currency fell by 44 percent against the dollar last year after the central bank cut interest rates to 14 percent from 19 percent between September and December despite a sharp uptick in inflation. The central bank has intervened in the currency markets to prop up the lira over the past two years, leaving its foreign currency reserves, net of liabilities such as swaps, deeply in negative territory.

Erdoğan told reporters during a visit to Albania on Tuesday that the government was working on further steps to help increase interest in the lira, the state-run Anadolu news agency reported.

The lira has rallied from a record low of 18.36 per dollar since Erdoğan announced a plan on Dec. 20 that pegged some Turkish lira deposits to the value of the dollar. The scheme has drawn in 131 billion liras ($9.7 billion) to lira deposits, Treasury and Finance Minister Nureddin Nebati said on Friday. That is equal to about 2.4 percent of total deposits in Turkey’s banking system.

The government may lower the minimum duration of deposits qualifying for the plan to one month from three months, Reuters reported on Tuesday citing a person familiar with the matter that it did not identify. The plan does not protect Turkish deposit holders against the erosive effects of inflation.

Consumer price inflation accelerated to 36.1 percent last month, the highest level since 2002, and is expected to nudge higher in the coming months. JPMorgan is predicting that inflation could hit 55 percent by May.

More Turks are turning to cypto-currencies to protect their savings. Trade in the currencies has reached as much as $20 billion per day and averages around $1.8 billion daily, the Wall Street Journal reported last week, citing data from three exchanges that accept Turkish lira.

Erdoğan also said on Tuesday that central bank interest rates would be reduced gradually from now on, inflation would decelerate, and the lira would get firmer, rendering 2022 as Turkey’s “brightest year”, Anadolu reported.


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