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Offbeat Global banks were unable to close lira trades

12:45  06 august  2020
12:45  06 august  2020 Source:   pressfrom.com

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Several international banks failed to close their lira positions with Turkish counterparts on Tuesday, an outcome of policies that are keeping a lid on Foreign lenders were unable to meet lira obligations as the cost of borrowing in the currency jumped as high as 1,050% for offshore investors, the people said

Several international banks failed to close their lira positions with Turkish counterparts on Tuesday, an outcome of policies that are keeping a lid on Foreign lenders were unable to meet lira obligations as the cost of borrowing in the currency jumped as high as 1,050% for offshore investors, the people said

(Bloomberg) - Several international banks were reportedly unable to close their lira positions with Turkish counterparties on Tuesday. This was in connection with measures to limit liquidity in local currency on the offshore market.

Foreign credit institutions were unable to meet their lira obligations as the cost of borrowing in the currency for offshore investors rose as high as 1,050%, according to people familiar with the matter.

Credit Suisse Group AG was initially unable to meet its lira obligations, but the Swiss bank was able to close the deal on Wednesday, another person reported.

Overnight rate jumps after currency intervention © Bloomberg Overnight rate jumps after currency intervention

The inability of the banks is reminiscent of previous upheavals in the offshore lira market. There, the supervisory authorities have created a permanent liquidity bottleneck in order to prevent a disorderly devaluation of the local currency. This resulted in several failed settlements similar to Tuesday's, and as a result, Turkish regulators temporarily banned local banks from trading Citigroup Inc., UBS Group AG and BNP Paribas.

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Global Trade Tracker. The country’s central bank had to extend operating hours during which foreign lenders can wire money to Turkey to allow them more time, but some lenders were still unable to close their positions, the official said.

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It is unlikely that regulators would impose fines for the failed transaction closings on Tuesday, said a person familiar with policymakers' reasoning. The Turkish Banking Authority and Credit Suisse declined to comment.

The recent supply shortage followed strong interventions in the currency market last week. The settlement of dollar sales by state banks to support the lira began after a holiday, causing the supply of local currency to decline and the overnight rate in the offshore market to rise to its highest level in 17 months.

Lira shortage

To deter short sellers, foreign investors have essentially been banned from borrowing from local banks and they have no access to finance from the Turkish central bank. As a result, those without the lira will have to borrow the currency in the offshore market - where supply is limited - which drives the price higher.

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The lira was down by 2% against the dollar, although there appeared to be heavy intervention (probably by state banks ) to limit the fall. Some foreign banks were unable to meet their obligations at the close of trading on Tuesday, forcing the central bank to extend hours for transferring funds in

Peso and rand are knock-on casualties of currency slide after lira falls 8% against dollar. Reto Foellmi, economist from the University of St Gallen in Switzerland, said: “As the lira has a reputation But everything must be done to ensure an independent central bank ,” Merkel said as the euro hit a

Market tensions reflect concerns about the size of Turkish reserves and an aggressive monetary easing cycle that has fueled the outflow of foreign capital. In light of the devaluation pressure on the currency, the authorities have used state banks to strengthen the lira by selling dollars instead of raising interest rates or reducing the supply of credit.

As in previous episodes of funding stress, investors struggling to raise lira began selling off their stocks and bonds, two traders familiar with the matter said.

Heading of the original article:

Global Banks Failed to Close Lira Trades as Funding Dried Up (2)

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