Things have not been going well for the Lira since last year and on Friday, the Turkish currency wobbled once more, as investors were considering the impacts of the steps taken by the government for supporting the economy. Meanwhile, there was a drop in the yields of the local currency bonds because the country’s central bank dictated that other banks should get more lira bonds for the purpose of foreign currency.

Fall in Lira

In early trading, the Turkish Lira dropped to 17.26 against the US dollar, after it had closed at 17.20 a day earlier. By 0856 GMT, the currency had been trading at a value of 17.19. In fact, at one point, it had even reached a level of 16.92.

There was a 2.5 percentage point drop recorded in the 10-year and 2-year bonds denominated in Lira, as the steps from the central bank were seen to give bond demand a boost. A bond dealer stated that the demand for bonds would go up in banks because of the announcement of the central bank, which now requires these institutions to allocate 3% to 10% of their bonds for deposits in foreign currency.

However, the credit default swaps for the country’s sovereign debt had reached a whopping 790 points. This means that in the last 12 months, they have almost doubled and have hit the highest they have been in the last 14 years.

There was a 3.5% increase recorded in the banking index of Borsa Istanbul, while a 0.7% rise was also seen in the blue-chip BIST100 index.

Government Measures

Some of the measures that were announced by the government for the Turkish economy included the issuance of domestic bonds by the Treasury that would be indexed to state institutions’ revenues. The purpose of this move is to encourage savings in the Lira. Moreover, the ratio for the commercial cash loans in Lira for the central bank was also hiked up from 10% to 20%.

In other news, the Turkish central bank also announced that banking institutions would also play a role in boosting the contribution of lira securities where the collateral pool is concerned. They will accomplish this goal by introducing fixed-rate securities for the long-term denominated in Lira for foreign currency deposits. This would come into effect from June 24th.

According to the central bank, the securities that need to be maintained by the banks should at least be 3% of the total deposits in foreign currency. This is in addition to the reserves that the bank may have set aside for the deposits in question. An additional 10% will have to be maintained in securities by all those banks that cannot convince their customers to convert their savings in foreign currencies to the Turkish Lira.

There was a drop in the sovereign bonds, as a 0.5 cents decline was recorded in the 2035 bonds. It was last trading at 88 cents. In the last few days, there had been sharp declines recorded in long-term bonds, as many of them reached record low levels.

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