London Turkish lira overnight swap rate spikes, Refinitiv data show

LONDON, March 23 (Reuters) - Interest rates on overnight swaps for Turkey's lira briefly spiked to 1,400% on Tuesday, their highest in at least a decade, Refinitiv data showed, days after an upheaval in the central bank leadership.

President Tayyip Erdogan abruptly fired his hawkish central bank governor at the weekend and installed a critic of the country's tight monetary stance. That pushed Turkish markets into turmoil on Monday with the lira plunging as much as 15%.

The move in Turkish lira overnight swap rates evoked echoes of 2019, when rates rocketed to more than 1,000% as Turkish banks withheld liquidity from London markets when the currency came under pressure before local elections. read more

By early afternoon trading time in London, the level had eased to 500%.

"Foreign investors are trying to liquidate long TRY (lira) position in a rush this week," said Onur Ilgen, head of treasury at MUFG Bank Turkey.

"This resulted in a significant liquidity squeeze in the offshore lira swap market, driven from tenor mismatch for outstanding TRY placements as foreigners lending longer-term TRY via forward market have an immediate need for TRY cash to unwind long spot position on the currency."

Turkey's central bank was intervening in the cash markets by selling dollars and buying lira, while a squeeze in forward markets was driven by state-run banks, said a London-based trader.

There was no evidence that state banks had been instructed by the BDDK bank regulator to cut the limit for Turkish banks' forex swap, spot and forward transactions to foreign entities as they had been in 2019.

An economic adviser for Erdogan said earlier in the day that Turks sold $5.1 billion on Monday to profit from high exchange rates. Corporations sold $2.5 billion. read more