Turkish lira rebounds on Monday after sharp drop on Friday

The Turkish lira on Monday rebounded in volatile trade to below 6 against the dollar, erasing much of Friday’s sharp losses, after a bank regulator announced new limits on foreign-exchange transactions.

According to report by Reuters, investors and traders said the currency’s abrupt selloff and recovery, after weeks in a narrow range, which suggested Turkish state banks were again intervening to buffer the lira after they sold tens of billions of dollars over the past year.

The BDDK bank regulator on Sunday cut the limit for Turkish banks’ forex swap, spot and forward transactions with foreign entities to 10% of their equity, from a 25% ceiling set in August 2018 during the worst of Turkey’s currency crisis.

The lira strengthened to as low as 5.975 against the dollar and was worth 5.9955 at 0817 GMT.

It had tumbled to 6.05 on Friday, its weakest level in regular trading since May, as a late-week rally in the dollar prompted a selloff across emerging markets.

The currency’s one-month implied volatility spiked on Friday and Monday to its highest level since mid-January. A week earlier, it touched its lowest level since mid-2013 after a broad downward trend since May of 2019.

The BDDK’s new FX limits are one of a series of government steps taken to stabilise the currency after the 2018 crisis cut its value by 36% in two years and tipped Turkey’s economy into recession.

While economic growth rebounded in the fourth quarter of last year, official data on Monday showed that unemployment remained elevated at 13.3%, down from 13.4% a month earlier.