Turkey bans 3 banks from transactions as lira hits record low against the dollar

Turkey blocked BNP Paribas, Citibank, and UBS from making lira transactions after the currency hit a record low against the dollar on Thursday, as investors fretted about a lack of reserves to protect the economy from the coronavirus impact.

Thursday’s fall to near 7.27 pushed the lira beyond a previous record low during a 2018 currency crisis and extended five sessions of declines as Turkey sought to mitigate the effects of the outbreak, which has killed 3,584 people.

It later recovered ground after the banking watchdog announced a ban on lira transactions by the three banks, saying they were unable to fulfill lira liabilities in due time.

The state-owned Anadolu news agency had earlier reported the watchdog was launching legal action against London-based institutions it said had mounted a “manipulative attack” on the lira.

The currency stood at 7.0925 at 1600 GMT, firming 1.5 percent, having weakened as much as 1 percent to 7.2690. It has lost some 18 percent this year under pressure from the COVID-19 pandemic, with more than 130,000 cases in Turkey.

Market concerns had been stoked by comments from a US Federal Reserve policymaker, which traders interpreted as ruling out a Fed swap line to cushion Ankara’s depleted reserves.

Turkey’s Finance Minister Berat Albayrak voiced optimism in a conference call with investors on Wednesday about sealing a swap line deal for forex funding, but he gave few details, several participants in the call told Reuters.

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Heading for its second recession in less than two years, Turkey has asked the Federal Reserve and other central banks for access to funds as its own net foreign currency reserves have fallen to around $28 billion from $40 billion so far this year, reaching as low as $25 billion two weeks ago.

Data on Thursday showed the Turkish Central Bank’s gross forex reserves stood at $51.46 billion as of May 1, down from $52.66 billion a week earlier.

The Fed policymaker - asked on Wednesday about extending swap facilities to Turkey and others in need – said the Fed already has lines with countries that have a relationship of “mutual trust” with the United States and high credit standards.