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bank’s balance sheet showed last month.
Following the corona pandemic in March 2020, many other countries have been employing direct interventions in the FX market to defend their currencies against the strengthening USD.
Turkish state lenders on April 15 sold $1-1.5bn to help prop up the lira, three unnamed traders told Bloomberg. On April 21, they sold around $400mn. On April 22 when the central bank cut the policy rate two times higher than the market expectation of 50bp, they sold $600mn.
State lenders are active on the USD/TRY market 24 hours a day on all five trading days with traders ready to respond to any lira weakness—there’s news value when the sales of these banks exceed $1bn on a day when all emerging-market peer currencies fall apart and the lira nonsensically remains somewhat resilient.
The embattled USD/TRY could depreciate to the 8 threshold in the wake of the coronavirus causing a “sudden stop” on emerging markets and record capital outflows, analysts at Japan’s largest bank Mitsubishi UFJ Financial Group (MUFG) said on April 2.
The coronavirus will no doubt slam into Turkey’s tourism sector, which accounts for 12-13% of Turkey’s economic output, MUFG noted.
MUFG also highlighted March’s Turkish central bank rate cut of 100bp, which brought the benchmark lending rate to 9.75%, and the national lender’s front-loaded government bond-buying programme.
Japan has been one of the biggest carry trade sources for Turkey.
The Turkish lira (TRY) implied volatility gauges leapt to the highest level in a year on April 6 after the currency fell to levels last seen during Turkey’s balance of payments crisis in August 2018.
The one week gauge rose to 23.8%, data from Fenics, as cited by Reuters, showed.
Meanwhile, one-month risk reversals for the Turkish lira—a gauge of demand for options on the currency rising or falling—against the dollar, climbed to 8.375 vol.
The USD/TRY rate weakened as far as 6.79 at around 14:05 Istanbul time on April 6.
33 TURKEY Country Report May 2020 www.intellinews.com
