A sharp selloff in Turkey's lira slowed on Thursday, when it slipped only 0.8% compared with a 7.2% plunge the day before, as traders said it was nearing more 'normal' levels ahead of the expected appointment of a new central bank governor.
Woman holds Turkish Lira banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/IllustrationFall shows move towards freely traded currency - economistsInvestors hope new finance min will restore orthodox policies
In a sign of caution, Turkey's five-year credit default swaps added 34 basis points from the Wednesday close, breaking back above 500 to hit 516 bps, data from S&P Global Market Intelligence showed. Traders said the currency should not depreciate as much as it did on Wednesday because it is nearing levels where it does not need to be defended through the use of reserves.
Under Erdogan's unorthodox programme, authorities have been taking a hands-on role in foreign exchange markets, using up tens of billions of dollars of reserves this year alone to hold the lira steady. Investors said they are awaiting that appointment and also a potential emergency rate hike - to around 25% from the current 8.5% - ahead of the central bank's next scheduled meeting on June 22.
Amid the policy loosening, authorities redirected forex and tapped reserves to stabilise the lira - until the Wednesday selloff.
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