Lira Plunges 7% to Record as State Lenders Retreat From Defense

(Bloomberg) — The Turkish lira plunged the most in more than a year on Wednesday as traders said state lenders had halted dollar sales to defend it, in a sign the government’s new economic administration is giving in on costly interventions.

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The currency fell as much as 7.1% to 23.1616 per dollar at 10:15 a.m. in Istanbul, weakening for a 12th straight day.

President Recep Tayyip Erdogan’s appointment of former Merrill Lynch strategist Mehmet Simsek as treasury and finance minister in his new administration has sparked expectations of a return to a more orthodox economic policy set with reduced state intervention in markets. Since the second round of Turkey’s elections on May 28, the lira has weakened more than 12% against the greenback.

Turkey’s state banks don’t comment on their interventions in the foreign-exchange market. A former Turkish central bank governor said in 2020 that government-owned lenders carry out transactions in line with regulatory limits and could continue to be active in the currency market.

Goldman Sachs Group Inc. analysts recently revised their forecast for the dollar-lira pair higher, citing increased pressure on the currency. The bank sees the lira depreciating to 28 per dollar in 12 months, compared with a previous projection of 22, according to a report dated June 3.

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Japanese retail investor flows may have contributed to the currency’s swoon in early Wednesday trading, said Fujitomo Securities Chief Technical Analyst Tetsuya Yamaguchi. “As the Turkish lira kept weakening, there might have been some stop-losses triggered in the lira and yen market,” he said, noting increased volumes in the yen-lira trade.

–With assistance from Yumi Teso.

(Updates markets.)