Turkish authorities are working on a plan to exempt global investment banks from some restrictions on swapping foreign exchange for liras after easing access for international development banks, according to people with direct knowledge of the matter.
Turkey’s banking regulator may soon publish a decision that will allow international investment banks to conduct lira swaps, the people said, speaking on condition of anonymity because the matter is sensitive. The regulator declined to comment.
A ruling published late July gave the green light to development banks to buy liras in the Borsa Istanbul foreign-exchange swap market, conduct repurchase and reverse-repo transactions, and engage in lira-deposit operations with local banks. That was on condition the lenders invest in Turkish assets and extend credit to local firms.
The move will likely increase the share of lira loans for the European Bank for Reconstruction and Development and the International Finance Corp., other people familiar with the matter said. It also comes as the lira plunged to a record low on Thursday as interventions by state banks failed to reassure investors.
A similar move will ease investment banks’ access to lira. To deter short sellers, foreign investors have essentially been barred from borrowing from local banks, and don’t have access to the Turkish central bank’s funding. That means those without liras on hand have to borrow the currency in the offshore market — where supply is limited — driving up the cost of money.
The rate of borrowing Turkish liras overnight in the offshore market jumped as much as 1,020 percentage points to 1,050% on Tuesday as dollar sales executed by state banks, designed to prop up the lira, drained the supply of local currency. As a result, several international banks failed to close their lira positions with Turkish counterparts.
The authorities will continue to expand exemptions for other institutions following the easing of measures for global investment banks and development banks, the people said.
– Bloomberg.