May 15, 2020 / 9:00 AM / 2 months ago

UPDATE 1-Turkish lira holds gains on optimism over global funding search

(Adds budget, housing data, context on cash crunch)

ISTANBUL, May 15 (Reuters) - The Turkish lira edged up on Friday and held gains from late Thursday when Reuters reported the government held talks with counterparts in Tokyo, London and elsewhere over new possible foreign funding, stoking investor optimism.

The currency, which hit a record low of 7.269 last week, stood at 6.917 against the dollar at 0847 GMT after data showed that measures taken to curb the coronavirus pandemic weighed heavily on the fiscal budget and on housing sales here

The currency firmed late Thursday after a Reuters report that Turkey was in talks with Japan and the United Kingdom on setting up currency swap lines, and with Qatar and China on expanding existing facilities.

The lira firmed to as much as 6.9 following the report that cited Turkish officials and said it was unclear how close Ankara may be to securing any sort of deal.

The currency “gained handsomely...amid the Reuters report saying Turkey is seeking swap lines with the UK and Japan,” Deniz Invest said in a note.

Turkey’s currency is down about 14% so far this year as concerns have grown over depleted foreign currency reserves and relatively high foreign debt obligations.

The broad search for funds suggests Turkey is looking beyond its preferred source, the U.S. Federal Reserve, and may have to consider interest rate hikes or options it has dismissed, such as IMF assistance or capital controls, investors say.

Tim Ash of BlueBay Asset Management said the report was “stringing the market along nicely” but added: “The reality is that if the Fed won’t extend a swap to Turkey I struggle to see either the Bank of Japan or the Bank of England doing it.”

Turkey’s pandemic measures - including a partial stay-home order, closed borders and closed schools and restaurants - have hit economic activity especially exports, tourism and demand.

Tax relief and new spending lifted the government’s budget deficit to 43.2 billion lira ($6.2 billion) in April, up 135.8% from a year ago, data from the Finance Ministry showed. In March it stood at 43.7 billion lira.

House sales plunged 55.5% year-on-year in April to 42,783 houses, the Turkish Statistical Institute said separately, reflecting fallout from measures taken to contain the spread of the new coronavirus. ($1 = 6.9168 liras)

Reporting by Ezgi Erkoyun, Nevzat Devranoglu and Jonathan Spicer; Editing by Anil D'Silva and Dominic Evans

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