ANKARA/ISTANBUL, Feb 6 (Reuters) - Turkey has managed to impose stability on its currency after two years of crisis and aftershocks, a turnaround the government hopes will rebuild trust among Turks who have shunned the lira even as some investors question its true value.
Last week, the lira's one-month implied volatility tmsnrt.rs/380VfOo fell to its lowest since mid-2013, dipping below many of its emerging-market peers, including Russia's rouble.
A drop in the current account deficit combined with a series of government moves - including curbs on foreign-exchange transactions and Turkish state banks selling tens of billions of dollars - have helped steady the currency.
The moves have also squeezed out foreigners, who last year pulled $3.3 billion from the bond markets of what was once a darling of emerging-market investors.
Ankara hopes its firmer grip on the lira will convince Turks to reverse a “dollarization” trend that lifted foreign currency deposits to another record last month at $197 billion.
Hard currencies now make up more than half of locals’ deposits, leaving the lira vulnerable to another bout of weakness and creating a speed bump as Turkey’s economy accelerates out of recession, economists say.
“The script now in Turkey is for managed markets, with foreigners pushed out, (and) this strategy is working to an extent,” said Tim Ash, strategist at BlueBay Asset Management.
A Turkish banker who requested anonymity said the oddly low volatility reflects “the disappearance of foreigners’ hot money positions.”
The lira has weakened 36% in two years and briefly shed half its value during the 2018 crisis that tipped Turkey’s economy into recession.
It was worth 5.985 to the dollar on Thursday after trading for several weeks just below 6, which some bankers said was a sign of more state bank interventions. Others said it was a reflection of low volumes and a lack of speculative trading.
“There is a perception in the market that lira volatility has been partly depressed by domestic interventions,” said Kieran Curtis of Aberdeen Standard Investments.
A Reuters analysis of central bank reserves shows the interventions amounted to about $30 billion last year and $7 billion early this year.
The Treasury and central bank declined to comment on interventions, though their chiefs have recently said Turkey’s real exchange rates look competitive at current levels.
Treasury Minister Berat Albayrak said on Twitter last month investors who trust the lira have gained since the crisis while those in “foreign currencies and speculative forecasts have missed very significant yields.”
However, bankers and investors told Reuters they take the lira’s exchange rate with a grain of salt given the increased state management.
“We can’t say it’s a bad indicator, but we have to also factor in the provision of an up to $30 billion potential state support to the equation,” said a second Turkish banker.
Interest rate cuts since July have squeezed yields on local lira accounts into negative territory. Analysts say that is unlikely to help reverse dollarization, especially if monetary easing continues.
The lira’s volatility measure has mostly outstripped the currencies of Russia, Brazil and South Africa over the past two years, and it soared between March and May 2019 as Istanbul’s election results were contested and as Washington threatened to impose sanctions.
But since then Turkey’s currency has been the least active among the four, according to Refinitiv data. A swing in the current account from a deficit of $54 billion in 2018 to a brief surplus of $4 billion last year has helped protect the lira from cross-border cash flows.
Additional reporting by Marc Jones in London; writing by Jonathan Spicer; editing by Larry King