Turkey and Qatar Triple Currency Deal to Aid the Lira

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(Bloomberg) —

Turkey secured a fresh source of foreign exchange from Qatar, leaning again on the gas-rich Gulf nation’s support after lobbying Group of 20 nations for a swap line as it ran down its hard currency buffers this year.

Turkish and Qatari central banks are tripling the limit of their existing swap deal to $15 billion to facilitate “bilateral trade in respective local currencies and to support the financial stability of the two countries,” according to a statement Wednesday. The lira briefly swung to a gain after the announcement, before erasing its advance to edge lower against the dollar.

The deal highlights the strength of an alliance that began to deepen after a failed 2016 coup against President Recep Tayyip Erdogan, when he received backing from Qatar’s rulers. Turkey returned the favor a year later by siding with Qatar after it came under an economic boycott from a group of countries led by Saudi Arabia.

The strong ties led to Qatar pledging as much as $15 billion of investment and offering a credit line to backstop Turkey’s financial system at the height of its currency crisis in 2018. Meanwhile, Turkey has stationed troops and steadily built up a base in Qatar since 2017.

Turkey Said to Seek FX Swaps With G-20 States Including U.S.

Turkish policy makers have been in talks to sign currency-swap arrangements with the central banks of G-20 nations. The country already has a currency-swap deal with China, signed eight years ago and renewed every three years. China’s central bank transferred $1 billion worth of funds to Turkey in June.

“The Qataris come through” without “any news from G-20 countries,” said Timothy Ash, a strategist at BlueBay Asset Management in London.

Of the $15 billion Qataris pledged in support in 2018, a third was intended for portfolio investment and another third for project finance, according to Ash. “I don’t think much of the $10 billion non-swap part of this agreement was disbursed, so maybe the Qataris are just rolling this into swaps,” he said.

The higher limit on the swap deal could effectively raise Turkey’s reserves by up to $10 billion, adding to a stockpile whose size was called into question by investors because the central bank boosted them by including dollars borrowed from commercial lenders in its foreign holdings.

Authorities have been leaning on state lenders to flood the market with dollars, and finding a source of foreign exchange has become increasingly urgent with gross central bank reserves down $17 billion since the beginning of the year to $89.2 billion.

The lira was trading 0.3% lower at 6.7957 per dollar at 10:53 a.m. in Istanbul.

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