ISTANBUL: The Turkish lira weakened 1 percent against the dollar early on Thursday, but losses were limited as Turkish authorities, according to sources, kept directing banks to withhold lira liquidity from the London market until after local elections on Sunday.
The lira stood at 5.4075 against the U.S. currency at 0458 GMT, easing from 5.33 at the end of Wednesday. Last year, it plunged almost 30 percent against the dollar.
On Wednesday, the London overnight swap rate surged as high as 1,200 percent in what was a stop-gap measure to bolster the lira. That was by far its highest on record, and economists said the level was no longer based on actual trading.
Such swap rates are a huge hurdle to foreign investors looking to bet against the lira or to hedge or close out positions, so they sold off holdings in Turkish stocks and bonds which came under heavy pressure for a fourth straight day.
The government's move is temporary and aimed at heading off "speculative attacks," one source familiar with the matter told Reuters on Wednesday.
Economists have called for reforms to the economy to dissuade a growing number of Turks from losing confidence in their currency and turning to foreign cash.
The head of the Turkish banking association, in a statement to Reuters, said lira swap rates were not surging due to banks withholding liquidity from foreign banks.
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