ISTANBUL: Turkey’s lira rallied further on Thursday and was on track for its best week in two decades, boosted by a government plan to protect some deposits and the added support of state banks aggressively selling dollars.

The lira rallied as much as 10pc to 10.25 versus the dollar, its strongest level in a month, before paring most of those gains to trade at 11.395 at close of business.

The currency has whipsawed back from a historic low of 18.4 on Monday when it was down some 60pc on the year, capping a week of record volatility and intraday swings.

Despite the rebound, risk measures are near all-time highs as questions remain over the state’s anti-dollarisation plan, which could further stoke inflation, add to public debt and eat into foreign reserves if the lira begins sliding again.

In an echo of past interventions, four sources said that Turkey’s state banks heavily sold dollars this week after President Tayyip Erdogan announced the government would guarantee some deposits against depreciation losses. One source said the interventions on Monday and Tuesday totalled $3 billion. The selling coincided with a drop in the central bank’s foreign reserves, which a second source said amounted to $6 billion on those two days alone.

The three big state banks — Ziraat Bank, Vakif Bank and Halk Bank — did not immediately comment on possible interventions. The central bank was not immediately available to comment.

The central bank’s balance sheet suggests that $5.5 billion of the fall in net reserves on Monday and Tuesday is due to foreign currency sales, said Haluk Burumcekci, head of Istanbul-based Burumcekci Consulting.

Reflecting market jitters, the cost of insuring against a sovereign default using CDS broke above 600 basis points earlier this week, before dipping back to 593, still near all-time highs, according to IHS Markit.

Published in Dawn, December 24th, 2021