Is The Lira Doomed: Turkey Emergency Currency Intervention Fails In Under Two Hours | WHAT REALLY HAPPENED


Is The Lira Doomed: Turkey Emergency Currency Intervention Fails In Under Two Hours

Turkey's economic and currency implosion is getting worse by the day.

With investors increasingly concerned about Turkey's level of FX reserves and ability to defend the currency, on Wednesday ABN-Amro analyst Nora Neuteboom poured gasoline on the fire saying what everyone else already knows, namely that "given the relatively low reserves, Turkey cannot afford to deplete its reserves further by defending the currency," adding that "as investors are well aware of this fact, a little spark in, for example the tensions with the U.S., could easily trigger another lira sell-off."

Of course, with the Turkish lira already in freefall, we may not even need a spark, as the rout gets worse with every passing day.

To wit: on Thursday, the lira fell for a fifth day against the dollar, touching the lowest level in eight months as investors bid up the price of Turkish CDS which insure against a default on the nation’s bonds. The lira weakened as much as 1% to 6.2456, sliding below 7 per euro, while the cost of five-year credit default swaps climbed above 490bps for the first time since September.

The lira - which Bloomberg reminds us has been the worst-performing currency in the world this quarter - shed more than 4% of its value over the past five trading sessions amid the fallout from Turkey’s decision to re-run municipal elections in Istanbul.

And then, out of the blue, an unexpected attempt to restore confidence in the lira took place, when just after 6am ET, Turkey’s central bank unexpectedly raised borrowing costs for the country’s lenders on Thursday in an attempt to bolster the crashing currency. The decision effectively raised the cost of funding for banks by 150 basis points without an official increase in its benchmark interest rate, with the central bank explaining in a statement that the decision was due to volatility in financial markets.

What happened next? Well, there was good news and bad news.

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