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Quatar’s Relief Helps the Turkish Lira

Turkey secured a tripling of its currency-swap agreement with Qatar to $15 billion. It provided much-needed foreign funding to reinforce its depleted reserves and help steady the Turkish lira in the FX market.

Ankara had been urgently seeking access to funds from Doha and elsewhere to head off a potential currency spiral. Analysts say tens of billions of dollars might be needed. At this stage, talks are continuing.

Turkey’s central bank said the deal with its Qatari counterpart has raised the existing FX limit from the equivalent of $5 billion. This would support financial stability and trade.

The lira touched a historic low earlier this month. This was due to investors fretting over a drop in the central bank’s net FX reserves. Also, it was due to the country’s relatively high foreign debt obligations, accelerating Ankara’s overseas funding search.

Officials from Turkey’s Treasury and the central bank had appealed to counterparts in Qatar and China about expanding existing swap lines. They had also appealed to the United Kingdom and Japan about possibly establishing them.

Turkey currently has a roughly $1.7 billion swap facility with Beijing.

Before the central bank’s announcement the senior Turkish official said that talks on swaps are continuing. Especially some are in a very positive situation. They expect positive results from them soon.

The official requested anonymity and characterized some of the conversations as ongoing while others as on hold.

The Lira Down 0.2% versus the Dollar

The lira has rallied over the last eight forex trading days on expectations of new funding. It would stem earlier selling in the Turkish currency that some analysts said risked escalating as in 2018. That was when Turkey’s currency crisis shook emerging markets.

It went down 0.2% to 6.795 versus the dollar on Wednesday.

The amendment of the limit on the 2018 swap agreement with Qatar’s central bank aimed to facilitate bilateral trade. This was trading in local currencies and it also aimed to support the financial stability of the two countries.

The central bank in Doha would accept the Turkish lira under the facility in exchange for Qatari riyals.

Turkey has moved on from its preferred source of dollar funding, the U.S. Federal Reserve. The Fed appears unlikely to extend a swap line based on comments from current and former Fed officials.

Tatha Ghose, an analyst at Commerzbank, said the lira rallied on speculation over deals with Tokyo and London. However, he added that swaps are a secondary story to prospects of a rebound in Turkish exports. Now that European economies are re-opening from coronavirus-related lockdowns.

Stronger export numbers would dispel the lira’s current woes. Albeit many problems will remain long term, Ghose wrote.

Net FX reserves at the central bank have fallen to $26 billion from $40 billion this year. Analysts say this was in part due to state bank forex interventions to help stabilize the lira. Turkey’s 12-month foreign debt obligations are $168 billion.

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