(Repeats Nov 26 article with no change to text)
ANKARA/ISTANBUL, Nov 26 (Reuters) - Turkey's lira is caught
in a tug of war between foreign investors who cheered a big rate
rise and government reform promises, and locals who remain
cautious and are stocking up on gold and dollars.
The currency has had a volatile month after being the
laggard this year across emerging markets. Whether it can avoid
new record lows will help to determine the success of President
Tayyip Erdogan's pledge of a new market-friendly era for the
economy.
The lira soared some 12% after Erdogan replaced the central
bank chief and finance minister in a shock overhaul early this
month. In the following week, foreigners snapped up $5 billion
in Turkish assets, based on bankers' calculations.
But it slid back 5% this week as Turks and local companies
stepped in to buy $2.5 billion in hard currencies at what was
seen as a discount, and bankers say larger firms may be in the
market for hard currency to meet rising foreign debt
obligations.
FX holdings in Turkey have never been higher at $228 billion
and a big reason is imports of some $22 billion of gold this
year - a favourite store of value for Turks especially in
uncertain times.
"The people are buying gold after selling their cars or
houses, or just bringing their money to keep it as gold," said
Mehmet Ali Yildirimturk, a shop owner in Istanbul's Grand Bazaar
and deputy head of a city gold shops association.
"The pledge of economic reforms created an optimism in the
market, but these promises need to be fulfilled with actual
steps," he said.
Erdogan has long blamed foreigners and high interest rates
for two bad economic slumps and a more than 50% drop in the
lira's value since early 2018.
The president's rhetorical pivot this month - on both
foreigners and interest rates - comes after a series of record
lows in the currency and as the central bank's FX reserves
dwindled.
PENT UP DEMAND
Turkish authorities have begun untangling restrictions on
offshore investing, including limits on FX-to-lira swaps, that
were adopted last year amid distrust of foreigners.
But changes will happen only slowly given tens of billions
of dollars are tied up at the central bank to shore up reserves.
That leaves a bottleneck of demand from foreigners who can
access only about a 10.5% yield on Turkish assets in a London
swap market even after Turkey's central bank raised its policy
rate by 475 points to 15% last week.
"We are definitely seeing a more orthodox policy mix (and)
taking these changes cautiously as a positive," said Kieran
Curtis, EM portfolio manager at Aberdeen Standard Investments,
which after long staying away bought Turkish assets this month.
He said another rate hike next month of 50 basis points
would be "sensible" and could keep foreigners interested.
The foreign inflows could help to keep Turkey's ballooning
current account deficit in check after coronavirus fallout cut
tourism revenues by about $20 billion.
The gold surge adds to the trade imbalance and the risk of
foreign debt defaults, according to credit ratings agencies and
other analysts. The central bank expects gold imports to reach
$24 billion by year end, more than twice the average.
A wealth manager at one Turkish bank said clients have been
urged to go long on the lira since Nov. 6. "But as we can see
... locals did buy around 4 billion worth of gold and FX in just
two weeks," the person said, requesting anonymity.
(Additional reporting by Ezgi Erkoyun and Ebru Tuncay in
Istanbul and Marc Jones in London; Editing by Daren Butler and
Jane Merriman)