In an effort to curb the short selling of the Lira, Turkey is planning to limit supply of liquidity in the offshore market by restricting local investors from purchasing new Lira bonds issued by supranationals (IFC, World Bank, EBRD etc). The objective is to reduce the supply of local currency available outside Turkey and thereby increase the cost of speculating against it. Bloomberg notes that the overnight forward-implied yield on the lira is already around 100% and that the borrowing cost in offshore markets may rise further if the latest measure goes ahead. This comes at a time when Turkey’s inflation has skyrocketed to 73.5% in May, a 23-year high. Besides, the lira has also dropped over 20% YTD against the dollar, the biggest decliner in the EM space.
Turkey’s dollar bonds were stable, trading between 75-85 cents on the dollar.
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