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At least until Sunday's local elections are over, Turkey will continue to instruct banks to control Lira's liquidity in a major foreign exchange market, sources said. The Turkish government has stepped up efforts to safeguard the lira exchange rate, which fell sharply last week.
The government's expedient to restore confidence in Lira helped the London overnight swap rate soar to a record high of 1,200% Wednesday, which analysts say is no longer based on real transactions.
This poses a huge obstacle to foreign investors who want to short lira, or hedge and liquidate their positions, so they sell their positions in Turkish stock and bond markets. The stock and bond markets have been under heavy pressure for the fourth consecutive day.
One of the three sources told Reuters that the government's move was temporary and aimed to prevent "speculative attacks".
Investors and analysts, however, reiterated their call for sustained economic reforms that would not allow more and more Turks to lose confidence in Lira and turn to foreign currencies.
However, Huseyin Aydin, chairman of the Turkish Banking Association, denied the reports in a statement to Reuters, saying that the swap rate did not soar because the banks froze Lira's liquidity in the offshore swap market.


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