Turkish state banks sold around $4.5 billion last week, two sources told Reuters, including in a flurry of selling late on Friday, to support the lira and stem declines triggered by a decision this week to re-run Istanbul’s mayoral election.
The lira closed at 5.9955 against the U.S. dollar on Friday, after hitting its weakest level in more than seven months at 6.2460 on Thursday.
Four sources confirmed the banks’ efforts on Friday to protect the lira.
“The state banks intervened again between 1800-2000 GMT,” an investor source said.
“So [there were] two interventions in the relatively thin end-of-day U.S. timezone,” the source added, referring to Friday and to dollar selling the previous day.
“We clearly started to notice Turkish banks are in the market after the lira firmed to 6.10 against dollar on Friday,” a senior forex trader at a bank said.
“Banks offered U.S. dollars until the market was completely illiquid.”
The lira has lost as much as 15 percent against the dollar this year, with the latest weakness driven by investor concerns over Monday’s decision to re-run a mayoral election in Istanbul that had been narrowly won by the main opposition party.
Turkey’s central bank on Thursday effectively tightened policy by funding the market through a higher rate and took additional liquidity steps to bolster the lira.
A rally on Friday in Turkish bonds was driven by buying by local pension funds, the investor source said adding there was “zero sign of offshore buyers” for bonds. A bond rally boosts the country’s currency.
The lira hit its weakest level in eight months on Thursday but recovered overnight. It stood at 6.08 against the US dollar on Friday evening.
The sources did not specify which funds the banks used for the dollar sales, but economists say the banks used dollars sourced from central bank facilities earlier this year to sell into the market to support the lira.
Turkey’s currency recently depreciated over expectations due to a strained relationship between Washington and Ankara as well as US sanctions targeting Iran, which is Turkey’s top energy source.
Additionally, Turkey’s Supreme Election Board (YSK) ruled to hold the İstanbul mayoral election again, stretching out the political uncertainty for at least two more months.
According to some observers, poor economic performance cost the ruling party big cities such as İstanbul, Ankara, Antalya and Mersin in the March 31 local elections.