London Turkish lira overnight swap rate spikes to 1,400% – Refinitiv
LONDON (Reuters) – Interest rates on overnight swaps for Turkey’s lira spiked to 1,400% on Tuesday, Refinitiv data showed, hitting their highest in at least a decade days after a central bank leadership overhaul.
President Tayyip Erdogan abruptly fired his hawkish central bank governor at the weekend and installed a critic of the country’s tight monetary stance pushed Turkish markets into turmoil on Monday with the lira plunging as much as 15%.
The move in Turkish lira overnight swap rates evoked echoes of April 2019, when it rocketed to more than 1,000% as Turkish banks withheld liquidity from London markets when the currency came under pressure in the run-up to local elections.
The sharp spike was making it expensive to short the lira, said Tim Ash at BlueBay Asset Management in emailed comments.
“It’s killing people already invested in Turkish lira assets as it makes it so expensive to hedge and reduce exposure.”
There was no evidence that state banks had been instructed by the BDDK bank regulator to cut the limit for Turkish banks’ forex swap, spot and forward transactions to foreign entities as they had been in 2019.
An economic adviser for Erdogan said earlier in the day that Turks sold $5.1 billion on Monday to profit from high exchange rates, while corporates sold $2.5 billion.
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