Ankara’s stop-gap move to restore confidence in lira helped send London overnight swap rate rocketing to 1,200 percent.
Turkey will keep directing its banks to withhold lira liquidity from a key foreign market at least until after local elections on Sunday, sources have told the Reuters news agency, as the government intensifies efforts to defend the currency, which plunged last week.
The government’s stop-gap measure to restore confidence in the lira, which remains unsteady after a crisis last year, helped send the London overnight swap rate rocketing to 1,200 percent on Wednesday.
That was by far its highest on record and so high that economists said it was no longer based on actual trading.
That presented a massive hurdle to foreign investors looking to bet against the Turkish currency or to hedge or close out positions, so they sold off holdings in Turkish stocks and bonds which came under heavy pressure for a fourth straight day.
The government’s move is temporary and aimed at heading off “speculative attacks”, one of the three sources familiar with the matter told Reuters.Investors and economists, however, responded with another round of calls for longer-lasting reforms to the economy to dissuade a growing number of Turks from losing confidence in their currency and turning to foreign cash.
However, the Turkish banking association head denied the reports in a statement to Reuters, saying lira swap rates were not surging due to banks withholding liquidity from foreign banks. Huseyin Aydin said the reason behind the rise in lira swap rates was that there was not enough lira for foreign banks to buy dollars, and added that Turkey had shown the necessary stance against a speculative attack on the lira.
“Investors who try to buy large amounts of foreign currency quickly with the thought that the lira is cheap and will remain that way were not able to find lira for the foreign currency that they acquired,” Aydin said.
While the lira came under fresh pressure on Wednesday, weakening more than two percent to 5.4440 against the dollar in volatile trading, steps taken by the central bank in recent days have succeeded in erasing its steep losses on Friday. Last year, the lira lost nearly 30 percent of its value.
“When liquidity returns to the market, participants will be able to express their sentiment towards the lira in an unconstrained way,” said Piotr Matys, emerging market forex strategist at Rabobank.
“It is crucial that [Turkey] starts implementing reforms as soon as possible after the local elections to restore confidence in the lira.”
Others in the market said foreign investors, squeezed out of the foreign exchange (FX) swap market, sold stocks and bonds to get hold of lira and close out positions.
Turkey’s main BIST 100 index tumbled seven percent, with the banking index down eight percent, in its fourth straight day of losses. In another reflection of growing investment risks, the benchmark 10-year bond yield rose to 18.72 percent, its highest since October. he London overnight swap rate spiked to 1,200 percent from 330 percent on Tuesday and 24 percent just last week. The weekly rate jumped to 200 percent from last week’s 22 percent, Refinitiv Eikon data showed.
Source: Al Jazeera.
Wednesday, April 22, 2026
