Turkey Plans Zero-Cost Lira Funding, Guarantees for Foreigners

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(Bloomberg) — Turkey is working on a plan to attract inflows of hard currency by offering lira funding, free of interest and with a guaranteed 4% return in dollars, to foreign investors willing to park their money for at least two years.

Under the plan, the central bank would provide lira liquidity to foreigners for investment in local bonds with a maturity of at least two years, according to a person with direct knowledge of the deliberations. Besides extending zero-yield swaps, the monetary authority would also guarantee a 4% return in dollar terms when the securities mature, the person said.

Discussions are ongoing and details of the plan could still change, said the person, who asked not to be identified as the information isn’t public. The central bank declined to comment.

The outreach to investors marks a new tack for Turkey and would represent a major U-turn by the central bank, a reflection of pressure on authorities to reverse capital outflows. It’s used similar measures to shore up the currency at home by rolling out state-backed deposit accounts that shield savers from lira weakness.

After a currency crisis in 2018, Turkey introduced numerous restrictions on foreign transactions to defend the lira, placing limits on swaps with local banks to deter short sellers. But as a side effect, foreign holdings of Turkish stocks and bonds have fallen to a historic low.

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