May 18, 2020 / 8:35 AM / 19 days ago

UPDATE 1-Turkish lira on 8-day rally as funding hopes offset trading curbs

(Adds comment, bonds, stocks, background)

ISTANBUL, May 18 (Reuters) - The lira strengthened for an eighth straight day on Monday and Turkish stocks rose, supported by hopes the government will be able to secure foreign funding amid the coronavirus pandemic even as foreign investors pull back.

Dealers said the currency rallied amid a decline in foreign trading after a series of limits imposed by the BDDK banking watchdog. As a result, lira trading was halted on at least one foreign electronic platform on Monday.

The currency had firmed late last week after a Reuters report that Turkey was in talks with Japan and the United Kingdom on setting up currency swap lines, and with Qatar and China on expanding existing facilities.

The lira, which hit a record low of 7.269 on May 7, strengthened as far as 6.8350 against the dollar, its strongest level since mid-April. At 0828 GMT, it stood at 6.8720, compared with a close of 6.9050 on Friday.

Istanbul’s main share index was up 1.5% after prices were confirmed for expected capital injections at state banks, whose shares rose.

Recent volatility has been driven by concerns over Turkey’s dwindling FX reserves and relatively high foreign debt obligations, and also by the pandemic that is expected to tip Turkey’s economy into its second recession in as many years.

The last recession was sparked by a 2018 currency crisis and in response Ankara took a series of steps last year to clamp down on financial markets, sparking an exodus of foreign money and turning the economy partially inward.

The latest measures brought another rush for the exits, leaving non-residents holding only about 5% of Turkish government bonds, a record low for the major emerging market economy.

“No matter what officials say to the contrary, in practice the Turkish economy is step by step becoming ‘less open’,” former deputy central bank governor Ibrahim Turhan wrote on Twitter. He is a member of the new Future Party.

Clearstream Banking said late last week that transactions in lira over its Bridge settlement platform can no longer be settled under satisfactory conditions due to liquidity restrictions on the currency related to the COVID-19 disease.

Together with Euroclear Bank, Clearstream said it had therefore taken the joint decision to temporarily suspend this service, effective from Monday.

Investors were also eyeing the central bank’s policy-setting meeting on Thursday, when it is expected to continue with its rate-cutting cycle. At the previous eight meetings it has cut its benchmark rate by 1,525 basis points to 8.75%.

Deniz Invest said in a note it expects a 50 basis-point rate cut on May 21. (Reporting by Nevzat Devranoglu; Writing by Daren Butler; Editing by Jonathan Spicer)

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