LONDON (Reuters) – Turkey’s repeated attempts to shore up the lira over the past year have left it perilously low on hard cash reserves as domestic households scramble to shift their savings to dollars and companies struggle to refinance their overseas debts.
The drain on the central bank’s foreign currency buffers raises uncomfortable questions about Turkey’s balance of payments and its ability to roll over foreign loans – and how and from whom it would seek emergency reserves if necessary.
The voracious domestic appetite for hard currency, meantime, has become a critical gauge of trust in the authorities’ ability to manage the lira and the country’s finance during the harshest economic contraction in a decade.
Data released last week showed gross FX reserves at Turkey’s central bank dropped by some $3 billion (£2.3 billion) to $73.78 billion in the week to March 15. Meanwhile, total forex deposits and funds, including precious metals, of Turkish local individuals hit a record high of $105.74 billion.
“There are very few other countries whose level of FX reserves is as low as Turkey’s,” Paul McNamara, investment director at GAM in London. “With reserves down to this level, they really have no room for error and there is a lack of confidence, and that needs to be addressed.”
The numbers weighed heavily on the lira, prompting Ankara’s regulator to launch probes into a number of banks and blaming them for fuelling speculation with Turkish lenders reluctant to provide liras to offshore FX markets, pushing rates for foreign investors to punitive levels.
But the data itself showed more than just the low levels of reserves. It was also testimony to the role the central bank plays in the country ruled by President Tayyip Erdogan who takes a tough stance on the direction of monetary policy.
