Turkish lira nears all-time low after concerns over central bank reserves: report

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A teller holds Turkish lira banknotes at a currency exchange office in Istanbul on August 13, 2018. Turkey's troubled lira tumbled on August 13 to fresh record lows against the euro and dollar, piling pressure on stock markets on fears the country's crisis could spill over into the world economy. / AFP PHOTO / Yasin AKGUL

Turkey’s lira tumbled 1.3 percent on Wednesday and neared an all-time low hit during a 2018 currency crisis after a regulator clamped down further on foreign access to local markets, exacerbating investors’ concerns over depleted reserves, according to Reuters.

The selloff — the worst since mid-April — came ahead of a high-stakes conference call set for 1300 GMT between foreign investors and Finance Minister Berat Albayrak.

The lira slipped for a fifth straight session and stood at 7.158 against the dollar at 1245 GMT, from 7.065 the day before. Headed toward a record low of 7.24, it was the worst performer among major emerging market (EM) currencies.

The central bank’s net forex reserves have fallen sharply to nearly $25 billion from $40 billion this year. Analysts say that is largely due to its funding of state bank interventions to stabilize the lira, which has nonetheless fallen 17 percent so far this year.

Compounding worries, Turkey faces a relatively high $170 billion in external debt costs this year.

To address the cash crunch, Turkish authorities have reached out to the Fed and other central banks to seek a possible currency swap facility, though no deal has been announced.

Any Fed facility would be conditional on dollar needs, counterparty risk and monetary independence, which analysts have questioned in Turkey.

Swap lines — in which the Fed accepts other currencies in exchange for dollars — are meant to support big foreign dollar markets and not serve as a credit facility. The Fed did not include Turkey when it expanded them to some EMs in March.

Turkey is starting to slowly ease some measures taken to curb the pandemic, which are pushing its economy into an expected second recession in less than two years.

The last downturn was sparked by a currency crisis that in August of 2018 sent the lira to its weakest level yet.

Late on Tuesday, the BDDK banking watchdog limited lira transactions between Turkish banks and foreign firms to 0.5 percent of the local lenders’ legal capital, from 1 percent. Last month it cut the limit to 1 percent from 10 percent.

The watchdog said the moves are meant to ensure local financing needs are met amid a slowdown due to the coronavirus pandemic, but some said it was a sign options are running out.

Albayrak’s investors call is hosted by banks Citigroup and Société Générale and closed to the press. He has said the central bank’s reserves were adequate to meet short-term needs and highlighted its gross reserves, which stood at $53 billion.

But markets reflected growing risks including a jump to multi-week highs in both the cost of insuring exposure to Turkey’s sovereign debt, and in volatility gauges.

Turkey “needs a new forex injection,” said a local bank treasury official who requested anonymity. “The lira is heading towards an extremely low value. Any steps that reduce convertibility will be negative in the medium term if they are lasting beyond their short-term effects.”

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