Turkey halts lending to more FX-rich firms to boost lira

Thomson Reuters/Dado Ruvic

Turkey tightened lending rules for many companies with more than $500,000 in foreign currency cash on Friday, sweeping up more borrowers under rules adopted in June in the latest step to reverse a tumbling lira.

The BDDK bank regulator said that if companies subject to independent audit had more than 10 million lira ($538,000) of forex cash assets, and they exceed five percent of total assets or annual revenues, they will not be allowed to receive new lira loans.

The parameters were adjusted from those issued four months ago when they covered companies with 15 million lira of forex assets that exceed 10 percent of total assets or annual revenues.

The lira currency has touched record lows in recent weeks largely due to authorities’ unorthodox policy of slashing interest rates in the face of soaring inflation.

“The Turkish policy mix remains unsustainable and will eventually either lead to a policy reversal or to an economic downturn,” JPMorgan said in a recent in a client note, forecasting a 2023 move to 25 percent that could take the real rate to positive territory late next year.

Thirteen of 20 economists in a Reuters poll had predicted the central bank would on Thursday cut rates to 11 percent. Six said it would hold steady at 12 percent, while one forecast a cut to 11.50 percent.

The bank shocked markets in August and September by slashing its interest rate by 100 bps each time to revive a cooling economy. Easing became the consensus expectation after Erdogan earlier this month said the bank would continue rate cuts every month “as long as I am in power”.