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Turkish Lira Weakens As Treasury Borrows Millions to Keep Finances Afloat

June 17, 2020 at 13:59 by Andrew Moran

Various TRY banknotesThe Turkish lira is weakening against many of its currency competitors midweek as the government auctions millions in T-bills to keep the government’s finances afloat. The lira, which has come under enormous pressure this year, has stabilized over the last month. But a mix of a financial crisis and the coronavirus pandemic has impacted Turkey’s fragile economy.

On Tuesday, the Turkish Treasury borrowed $830 million from domestic markets. According to Treasury and Finance Ministry data, officials auctioned $362 million in six-month zero-coupon T-bills that will mature on December 9 and come with a 3.87% term rate. It also issued $468 million in three-year Turkish lira overnight reference rate (TLREF)-index bonds that will mature in June 2023 and offer investors a 2.56% rate.

The total tender for the T-bills in the first auction was approximately $950 million with a 38.1% accepted/tendered rate. The second auction reached $965 million with a 48.5% accepted/tendered rate.

Over the last week, Turkey has been reopening the economy and relaxing its lockdown restrictions. As part of these efforts, the government will remove a temporary wage support scheme that allowed businesses to maintain their payrolls. But local experts are pleading with public officials to maintain these support systems as the country tries to recover from the COVID-19 pandemic.

Since the start of the pandemic, about 3.5 million workers have benefited from the program. Moreover, Ankara has spent short of $3 billion to offer relief to more than 11.5 million households to ensure they were protected throughout the public health crisis. But Turkey’s unwinding may be too premature as industries initiate their recovery, and many analysts are recommending a three-month extension.

Late last week, it was reported that retail sales crashed 21% in April, down from the 6.4% contraction in March. Industrial production cratered at an annualized rate of 31.4% in April, down from the 1.7% decline in the previous month. The unemployment rate did dip 0.4% to 13.2%.

Despite the nation facing a steep recession this year, all eyes have been on the lira, which crashed to an all-time low of 7.2 against the greenback during the market meltdown. The lira remains down, but it has since stabilized due to the central bank’s interventions.

The USD/TRY currency pair rose 0.17% to 6.8585, from an opening of 6.8422, at 13:52 GMT on Wednesday. The EUR/TRY slipped 0.06% to 7.7084, from an opening of 7.7115.

If you have any questions, comments, or opinions regarding the Turkish Lira, feel free to post them using the commentary form below.