London investors said to manipulate lira; bans and heavy fines to follow

Foreign investors are manipulating the price of the lira, Turkey’s state-run news agency said, as the currency traded at its lowest levels on record.

Financial institutions based in London are ganging up to sell the lira, according to the report by Anadolu news wire. Legal proceedings against the institutions have begun and heavy fines and bans will follow, it said.

The investors are ignoring the rules of the free market with the “manipulative attacks”, the agency said, citing unidentified sources in the banking industry.

Turkey’s lira dropped to 7.24 per dollar on Thursday, exceeding a record low set during a currency crisis in 2018, when it briefly fell to 7.23 against the U.S. currency.

Investors and local savers are selling the lira as confidence in the currency declines. The central bank has spent tens of billions of dollars of its foreign currency reserves defending it just short of 7 per dollar, a level that it broke through this week. Concerns had intensified after the bank slashed interest rates to single digits from 24 percent in July last year.

Foreigners are selling liras they don't own and are buying dollars heavily, Anadolu said, without explaining the financial instruments they were using.

The attack was initially launched to coincide with a teleconference call between Treasury and Finance Minister Berat Albayrak and investors on Wednesday, Anadolu said.

The institutions had conducted similar currency operations in the overnight offshore market immediately before local elections in Turkey in March last year and found themselves unable to repay local banks as interest rates for the transactions surged beyond 1,000 percent annually, Anadolu said.

Albayrak, the son-in-law of President Recep Tayyip Erdoğan, sought to reassure investors during the teleconference call that Turkey has sufficient reserves of foreign exchange, pointing to the central bank’s gross reserves, which exceed $50 billion.

The central bank’s foreign currency reserves, net of liabilities, are now in negative territory, according to the latest official data.

Turkey’s economy was recovering from the currency crisis of 2018 before it recorded its first case of the coronavirus in mid-March. Since then, the lira has been under increasing pressure as concerns mounted for economic stability – Turkey relies on exports and tourism revenue for much-needed hard cash.

The Turkish authorities have sought to discourage local banks from trading with foreign investors in the offshore market by slashing the amount of capital they can invest and opening an alternative market domestically in an effort to control trading.