Turkey Advises Banks Against Offering Lira Liquidity Offshore

(Bloomberg) --

Turkish regulators have advised some local lenders against offering lira liquidity in the offshore money-market, according to three people with knowledge of the matter, in an apparent attempt to stand in the way of short selling of the currency.

The advice came from the banking watchdog BDDK, but was not an official directive, the people said, asking not to be named as the information is not public. It comes amid what traders have described as heavy dollar sales by state banks over the last week to stem a slide in the lira.

Earlier, Turkey’s stock exchange “temporarily prohibited” short-selling in seven banks, including Turkiye Halk Bankasi AS, against which the U.S. brought a criminal case for fraud and money laundering.

Spokespeople for the banking regulator and the Treasury and Finance Ministry said they weren’t aware of such advice.

Not all Turkish lenders received such guidance. At least one executive of a Turkish bank said the regulator had not been in touch.

The currency has extended a decline this month to more than 4% as traders brace for punitive U.S. sanctions in retaliation to Ankara’s military offensive in Syria. It was trading was 0.1% weaker against the dollar at 5.9233 of 9:39 a.m. in Istanbul.

Turkish regulators last orchestrated a liquidity squeeze in the offshore market in March, limiting a key source of lira liquidity for foreign investors trading the nation’s assets. The move drove overnight swap rates to over 1,000%, burning short sellers and forcing investors to dump Turkish assets as they scrambled to get their hands on funding.

Signs of a new liquidity shortage in the offshore market first appeared earlier this week, when the one-month forward implied rate on the Turkish lira jumped more than 400 basis points to over 20%. The gauge was trading at 17.6% on Wednesday, about 100 basis points above the central bank’s benchmark repo rate.

To contact the reporters on this story: Ugur Yilmaz in Istanbul at uyilmaz@bloomberg.net;Asli Kandemir in Istanbul at akandemir@bloomberg.net;Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net;Dana El Baltaji at delbaltaji@bloomberg.net;Riad Hamade at rhamade@bloomberg.net;Alaa Shahine at asalha@bloomberg.net

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