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Turkey's central bank supposes it may support lira

Could the Turkish currency actually gain strength? This volatile currency needs some serious support. According to Bloomberg, the lira has received that from its regulator. The central bank of Turkey has implemented a series of measures to bolster the national currency.

As a result, the Turkish lira appreciated by 0.7%, reaching 33.9161 per US dollar. Meanwhile, traders at the Grand Bazaar were selling dollars at a lower rate than the interbank market. Experts also noted that overnight lira rates in offshore zones fell below 50%, down from 61%. For Turkish authorities and regulators, this signals renewed interest from foreign investors in buying the currency.

Last Thursday, on September 5th, the central bank of Turkey introduced several measures aimed at increasing lira deposits and strengthening liquidity. Among these measures were raising the monthly growth targets for banks to increase the share of lira in total deposits, including corporate accounts with currency protection in the calculation of the overall target for transitioning to lira deposits, and raising the reserve requirement ratio on blocked lira accounts by 5 percentage points.

These steps came after a surge in demand for foreign currency, which led to a record drop in the lira over the past five months. In response, state banks ramped up their foreign currency sales, offloading around $10 billion in August to meet the heightened demand.

“The central bank’s latest steps aim to both help drain some excess liquidity, while possibly also aiming to limit domestic corporations’ recent shift to foreign currency from FX-protected accounts,” Onur Ilgen, head of treasury at MUFG Bank Turkey, said.

Currency strategists at Goldman Sachs have voiced concerns over this surge in demand, warning that it could lead to further declines in lira-denominated assets. At the same time, they believe that the central bank of Turkey should maintain a positive real interest rate to combat inflation.

Currently, the central bank is trying to encourage more lira savings by maintaining a tight monetary policy and keeping deposit rates attractive. Notably, offshore rates have recently increased, as state creditors' dollar sales and the unwinding of carry trades led to lower lira liquidity in several countries.

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