Qatar offers Turkey relief by tripling FX swap line to $15bn

The lira touched a historic low earlier this month as investors fretted over a drop in the central bank’s net FX reserves and the country’s relatively high foreign debt obligations. (Reuters)
Short Url
Updated 20 May 2020

Qatar offers Turkey relief by tripling FX swap line to $15bn

  • Ankara had been urgently seeking access to funds from Doha and elsewhere to head off a potential currency spiral
  • Turkey’s central bank said the deal with its Qatari counterpart would support financial stability and trade

ISTANBUL: Turkey secured a tripling of its currency-swap agreement with Qatar to $15 billion, the central bank said on Wednesday, providing some much-needed foreign funding to reinforce its depleted reserves and help steady the Turkish lira.
Ankara had been urgently seeking access to funds from Doha and elsewhere to head off a potential currency spiral, and analysts say tens of billions of dollars might be needed. A senior Turkish official told Reuters talks are continuing.
Turkey’s central bank said the deal with its Qatari counterpart — which raised the existing FX limit from the equivalent of $5 billion — would support financial stability and trade.
The lira touched a historic low earlier this month as investors fretted over a drop in the central bank’s net FX reserves and the country’s relatively high foreign debt obligations, accelerating Ankara’s overseas funding search.
Reuters reported last week that officials from Turkey’s Treasury and central bank had appealed to counterparts in Qatar and China about expanding existing swap lines, and to the United Kingdom and Japan about possibly establishing them.
Turkey has a roughly $1.7 billion swap facility with Beijing.
“Talks on swaps are continuing and especially some are in a very positive situation. We expect positive results from them soon as well,” the senior Turkish official said before the central bank’s announcement.
The official, who requested anonymity, characterized some of the conversations as ongoing and others as on hold.
The lira has rallied over the last eight trading days on expectations of new funding that would stem earlier selling in the lira that some analysts said risked escalating as in 2018, when Turkey’s currency crisis shook emerging markets.
It was down 0.2% to 6.795 versus the dollar at 0822 GMT on Wednesday.
The Turkish central bank said the amendment of the limit on the 2018 swap agreement with Qatar’s central bank aimed to “facilitate bilateral trade” in local currencies and “support financial stability of the two countries.”
Under the facility, the central bank in Doha would accept Turkish lira in exchange for Qatari riyals.
Turkey has moved on from its preferred source of dollar funding, the US Federal Reserve, which appears unlikely to extend a swap line based on comments from current and former Fed officials.
Tatha Ghose, analyst at Commerzbank, said the lira rallied on speculation about deals with Tokyo and London, but added that swaps are a “secondary story” to prospects of a rebound in Turkish exports now that European economies are re-opening from coronavirus-related lockdowns.
Stronger export numbers would “dispel the lira’s current woes, although many problems will remain in the longer-term,” he wrote in a client note.
Net FX reserves at the central bank have fallen to $26 billion from $40 billion this year, in part due to state bank FX interventions to help stabilize the lira, analysts say. Turkey’s 12-month foreign debt obligations are $168 billion.


Oil surges on hopes of new deal on output cuts

Updated 02 June 2020

Oil surges on hopes of new deal on output cuts

  • Brent price has doubled in five weeks
  • OPEC talks may be brought forward

DUBAI: Oil prices surged toward $40 a barrel on Monday as hopes rose for an early agreement to extend the big production cuts agreed by Saudi Arabia and Russia under the OPEC+ alliance.

Brent, the global benchmark, jumped by more 9 percent to nearly $39, continuing the surge that has doubled the price in five weeks — the best performance in its history. It recovered after record supply cuts agreed between the 23 countries of the OPEC+ partnership, and enforced cuts in US shale oil.

DME Oman crude, the regional benchmark in which a lot of Saudi Aramco exports are priced, rose above $40 a barrel for the first time since early March.

Market sentiment was buoyed by the possibility that the Organization of Petroleum Exporting Countries would agree with non-OPEC members to extend the cuts for a longer period than was agreed in April.

Oil analysts expect OPEC to fast track a “virtual” meeting to formally agree to maintaining cuts at the record 9.7 million barrels a day level. The meeting was scheduled for June 9, but bringing it forward would allow producers more time to set pricing levels.

Opinion

This section contains relevant reference points, placed in (Opinion field)

An official with one OPEC delegation told Arab News there was consensus among the 23 OPEC+ members for the new date, which could be as early as June 4. The meeting will also consider how long the current level of cuts would be maintained. Some OPEC members want it to run to the end of the year, other producers would prefer a two-month extension.

Omar Najia, global head of derivatives with trader BB Energy, told a forum run by Gulf Intelligence consultancy: “I’d be amazed if OPEC did not extend the higher level of cuts. As long as Saudi Arabia and Russia continue saying nice things to each other I’d expect the rally to continue.”

A Moscow source close to the oil industry said energy officials there had come to the conclusion that “the deal is working” and it was important to keep prices at an “acceptable” level.

Sentiment was also affected by a comparatively high level of compliance with the new cuts, running at about 75 percent among OPEC+ members, with only Iraq and Nigeria noticeable under-compliers.

Robin Mills, chief executive of Qamar Energy, said: “That’s where I’d expect it to be after two months in such a fluid situation. It will be even better in June.”