Moody's Downgrades, Central Bank Liquidity Tightening Push Turkish Lira Down 3%

The Turkish lira tumbled more than 3.00% against the dollar on Wednesday after Turkey’s central bank doubled banks' borrowing limits in the interbank money market, which effectively tightens liquidity:
"In the light of recent evaluations, the CBRT has decided that, to be effective from 29 August 2018, the banks’ borrowing limits for overnight transactions at the Interbank Money Market established within the CBRT would be twice the limits applicable before 13 August 2018.", said the Turkish central bank.
Turkey’s central bank tried to halt the drop of the lira earlier this month by lowering the Turkish banks’ FX reserve requirement from 45% down to 40%, but the lira’s fall accelerated following that announcement.

On a flight from Paris, Berat Albayrak, the financial minister of Turkey, told Turkish media today that he does not see “big risk about Turkey’s economy or financial system.”

But while Turkey's finance minister sees no “big risk,” ratings agencies are already starting to downgrade Turkish banks and government bonds.

American rating agency Moody's downgraded 18 Turkish banks and two finance companies today, citing deteriorating investor sentiment, and a “substantial increase in the risk of a downside scenario.”

At the height of today’s sell-off, the lira was down approximately 3.4% against the dollar, trading at 6.4832 lira to the dollar. At press time, the USD/TRY currency pair is floating at 6.4500.

Turkish flag photo credit: 1