Turkish authorities have raised the pressure on the country’s banks to limit corporate clients’ purchases of foreign currency to halt a renewed slide of the lira.
Bankers in Istanbul, Turkey’s financial center, say that they are facing increased interference from the central bank, with officials probing corporate FX transactions worth as little as $1mn. “Even for $1mn or $2mn, they are calling to check: who is the buyer?” said one senior Turkish banker. “They’re anxious about the corporate flow.”
The interference is the latest unconventional tactic Turkish officials have deployed to steady a currency that has fallen by 45 percent against the dollar over the past 12 months, sending inflation soaring.
With the financial sector under strong political pressure from President Recep Tayyip Erdoğan, bankers say they have little choice but to comply with the demands to seek advance approval from the central bank for big-ticket foreign currency purchases. In some cases, commercial banks have been ordered to refuse to facilitate FX purchases for their clients altogether, especially those worth more than $5mn.
While Turkish authorities have repeatedly interfered in the running of banks and corporates in recent years, another banker said that the meddling “has been intensifying” and they were “coming under closer scrutiny”.
The latest wave of pressure on Turkish companies and banks to limit their foreign exchange transactions comes at a time when liquidity in the country’s currency markets is limited, meaning that relatively small purchases of dollars or euros can have an outsized impact.
Erdoğan, a life-long opponent of high-interest rates, has used a string of unconventional methods to try to stabilize the lira while maintaining ultra-low real borrowing costs as he gears up for presidential and parliamentary elections that must be held before June 2023.
With the country’s benchmark lending rate at 14 percent, the real interest rate stands at minus 56 percent once annual inflation of 70 percent is taken into account, creating a strong disincentive for holding lira assets.
A widening trade imbalance, fuelled by soaring global energy costs, is another source of weakness and has exacerbated the demand for foreign currency.
The central bank — long seen as having insufficient foreign exchange reserves — spent around $24bn on defending the lira in the first three months of 2022, according to Haluk Burumcekci, an Istanbul-based analyst.
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