Turkish lira overnight swap rates soar to 280 percent in London – Reuters

The interest rate on Turkish lira overnight swap transactions surged to 280 percent in London on Tuesday, Reuters reported.

The rate jumped from 6.8 percent on July 29, just prior to the start of a religious holiday, Reuters said citing figures from data provider Refinitiv.

Turkey’s banks, acting on government orders, have previously sought to starve trading in the London market to prevent investors from shorting the lira. The currency fell 2 percent to 7 per dollar last week, ending almost two months of trading at around 6.85 per dollar. The losses reignited concerns among some investors for economic and financial stability.

“State banks have been reportedly intervening on behalf of the central bank, trying to slow down the pace of lira depreciation,” said Piotr Matys, Emerging Markets FX Strategist at Rabobank, according to Reuters.

“Such a move is the indication of the ongoing negative sentiment against the lira.”

Turkey’s central bank has spent tens of billions of dollars of its foreign currency reserves defending the lira against losses this year. State-run banks have also shorted the dollar to help stabilise the lira. The policy has prompted some economists to say that Turkey has introduced an unofficial currency peg for the lira.

The rates on the overnight swaps surged despite data showing a narrowing of the country’s trade deficit in July and an upswing in sentiment among manufacturers.

Turkey’s benchmark purchasing managers’ index (PMI) climbed to 56.9 in July from 53.9 in June, Markit Economics and the Istanbul Chamber of Industry said on Tuesday. Any figure above 50 reflects overall improvement in the sector. It was the figure in nine years.

Manufacturing sentiment in other emerging market economies is also improving sharply. It has risen to a record 58.2 in Brazil and 58 in Poland.