(Bloomberg) -- It hasn’t been this cheap to hedge against losses in the Turkish lira in almost two years.
The premium traders pay for options to sell the local currency against the dollar over those to buy it over a one-month period fell to 1.5 percentage points on Thursday, matching a low last seen in April 2018.
The drop comes amid a precipitous decline in the currency’s price swings this year, and signs that the central bank will adopt a more gradual pace of monetary easing. On Thursday, the policy maker made no changes to its inflation outlook for the end of this year and next, reinforcing that message.
Traders say dollar sales by state banks have also helped limit the downside for the lira, while demand for hard currency by local investors has capped any upside. Over the past 12 months, the lira registered the biggest decline in volatility across emerging markets.
Responding to questions about whether dollar sales by state banks was a way of stabilizing the lira, Treasury and Finance Minister Berat Albayrak told Nikkei newspaper last week that “within free-market rules, state banks pursue both the public interest as well as profitability, and this will continue as such.”
The lira slipped as much as 0.4% against the dollar to 5.9847 on Tuesday, nearing the psychologically-important level of 6 per dollar, amid a broad sell-off across emerging markets.
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