By Marc Jones

LONDON, (Reuters) – Turkey’s financial market saw its wildest hours for 48 hours after a sharp fall in the lira. This forced the government to devise a new strategy to persuade Turks to keep the currency.

These incentives can include money payments if inflation exceeds banks’ savings rates. The government will also remove a tax usually charged on domestic bonds. Private pension contributions may be increased.

The following four charts show the story of how it all unfolded.

ROUTES TO REBOUND

After having seen its value drop more than 50% since September’s central bank cut interest rates, the lira was in danger of spinning out. A 32% recovery was triggered by the new plan. Turks were less likely to panic, and instead convert all of their lira in dollars or gold now.

This jump puts the currency on track for its second-best week since 2001, when it saw a 33% increase.

Experts in currency warn that the move occurred at the most quiet time of year on FX markets, meaning there was little resistance.

For a related graphic on Lira rebounding 32% after 55% slump since September, click https://graphics.reuters.com/TURKEY-CURRENCY/zjvqkyremvx/chart.png

SWAP SPIKE

The currency was also shorted, or bet it would fall further. Traders would then have to immediately close any wagers in order to protect themselves from major losses.

Many of these bets were made with currency swaps. As a result, swap rates spiked in safety.

For a related graphic on Lira swap rates surge as anti-dollarisation plans unveiled, click https://graphics.reuters.com/TURKEY-CURRENCY/dwvkrzxdqpm/chart.png

SPEAKINGVOLUMES

This would have increased the rebound because traders and banks have already closed their positions before the Christmas holiday, which means that volumes will be lower.

Refinitiv data covers only a few platforms and shows that trading volume over the two previous days was 34,000 lots and 41,000 tons, respectively. These figures are some of the lowest this year.

For a related graphic on Lira daily volumes in 2021 click, https://graphics.reuters.com/TURKEY-MARKETS/LIRA/gdpzymxwrvw/chart.png

VOLATILE TIMES

Although the FX market’s main volatility gauges had already reached new record highs following the last week of record lows for the currency, they continued to rise after the biggest intraday swings in the currency – 55% at its most extreme–last week.

As a result of the sudden currency jump, the country’s stock exchange had to stop trading several times. Istanbul’s principal bourse has fallen by more than 13% since Monday. This puts it in the worst position since 2008’s financial crisis.

For a related graphic, click https://fingfx.thomsonreuters.com/gfx/mkt/gdpzymlxkvw/Pasted%20image%201640076530130.png