Turkey's Central Bank unexpectedly hiked interest rates on Sept. 24, triggering an improvement in the lira's value against the dollar. The Turkish Lira has sunk to record lows over the past month as Ankara's currency interventions proved futile.
Turkish Lira on Aug. 6 continued to weaken against dollar and was trading at a value of 7.28 per dollar at 5 p.m. local time. The lira is currently at its lowest level in almost three months. After the dramatic lira loss on Aug. 6, the Central Bank said that it was ready to use "all available instruments to reduce the excessive volatility in the markets," whereas the banking watchdog BDDK said it was easing limits on lira transactions with foreign lenders.
Ankara thinks it can obtain stability through the sale of foreign currency from the “back door,” which erodes reserves. Ankara has also resorted to bans and restrictions on foreign currency, but these are actually very old tools from the 70s.
The economy management in Ankara may have this thought of stopping the devaluation of the Turkish Lira by wounding the lira’s convertibility but actually it also damages the debt capacity of the Treasury.
Turkey’s BDDK bank regulator has dropped a trading ban imposed last week on UBS, Citigroup and BNP Paribas because they have fulfilled foreign exchange obligations promptly, according to a BDDK letter sent to banks on May 11. The short-lived ban was one of a few protective measures adopted by the government on May 7 when the Turkish lira tumbled intraday to 7.269 versus the dollar, its weakest ever.