Turkish lira gains after Erdoğan warns banks

Turkey’s lira gained against the dollar on Monday, partially erasing losses last week, after President Recep Tayyip Erdoğan warned banks they would pay a “heavy price” for buying foreign currency.

The lira rose 2.1 percent to 5.64 per dollar at 12:01 p.m. in Istanbul. The currency had slumped more than 4 percent on Friday.

Erdoğan issued the warning to the nation’s banks at a rally in Istanbul. He is campaigning on behalf of his Justice and Development Party (AKP) for nationwide local elections to be held on March 31.

"Some people" had begun provoking Turkey and were attempting to make the lira decline against foreign currencies with local help, Erdoğan said in a speech to thousands of supporters.

"I am calling on those who engage in such activities on the eve of elections, we know all of your identities,” he said. “We know what all of you are doing. Know this, after the elections, we will present you with a heavy bill.”

The lira fell on Friday after data showed the central bank’s net foreign currency reserves declined $6.3 billion to $28.5 billion in the two weeks to March 15, raising speculation that it was intervening to support the currency. Turks have been selling lira for dollars ahead of the elections, causing a surge in foreign currency deposits.

The central bank responded to the lira’s declines by suspending auctions of one-week repo at its benchmark rate of 24 percent, forcing banks to borrow at higher levels of interest.

On Monday, the central bank said it was committed to bolstering its reserves of foreign currency.

“The recent fluctuations in gross reserves are driven by ordinary transactions and periodic factors, and there are no unforeseen incidences,” the bank said.

The Turkish economy has entered a recession following a currency crisis last year that erased almost a third off the lira’s value against the dollar. The turmoil was provoked by concerns about an overheating economy and a political crisis with the United States over Turkey’s detention of a U.S. pastor on terrorism charges.

Turkey's banking watchdog, the Banking Regulation and Supervision Agency (BDDK), on Saturday said it had launched an investigation into JPMorgan after the U.S. investment bank said there was a high risk that the lira would decline after the elections and recommended that clients go long on the U.S. dollar.

Late on Friday, Treasury and Finance Minister Berat Albayrak, Erdoğan’s son-in-law, said speculators were talking down the Turkish economy on social media, labelling the comments ‘’manipulation’’ resembling the anti-government demonstrations in 2013 known as the Gezi Park protests.

On Thursday, the International Monetary Fund also angered the government by calling for reforms to steady the economy and assuage investor concerns.

“The authorities are urged to pursue a comprehensive set of policies to credibly and consistently address the key underlying imbalances,” IMF spokesman Gerry Rice said at a press briefing in Washington.