Overnight Turkish lira lending rate surges to 400 per cent

The Turkish lira overnight swap rate rocketed up to 400 per cent today, from a closing rate of 23.75 per cent on Friday.

The rate – which is the cost to investors of borrowing lira using foreign currency overnight – hit 1,200 per cent last week, by far its highest mark in history. Economists and bankers believed the Turkish government was attempting to avert a lira crisis ahead of elections.

Today’s rise will generate more suspicions of Turkish government intervention in the currency markets.

The lira recently came under pressure as investors looking to dodge risk sold emerging market currencies.

It was also squeezed by worries about a return to strained relations with the US surfaced over the issue of the Golan Heights and fears about the government loosening economic policy ahead of local elections which happened yesterday, and for which the official results are yet to be announced.

“It's clear that while things have been quite calm in Turkey it's still one of they emerging markets that's very vulnerable to bouts of risk aversion,” William Jackson, chief emerging markets economist at Capital Economics, told Morning Wire last week.