Turkey’s net forex reserves may be less than $17.5 billion – Bloomberg

The Turkish central bank’s foreign currency reserves have shrunk markedly this year as it sought to defend the lira, Bloomberg reported.

The monetary authority’s net forex reserves, which exclude those deposited by banks, fell by about $9 billion since late December, to just under $35 billion, Bloomberg said, citing its own calculations. Excluding its short-term, off-balance sheet liabilities, the amount could be less than half of that, it said.

The central bank’s war chest stood at $8 billion at the end of last week, Deutsche Bank has estimated, saying its calculations excluded public deposits, Bloomberg reported. The short-term liabilities included in net reserves also contain swaps made with state-run banks, which have sold dollars to stop the lira from weakening.

Turkey’s central bank has been defending the lira to help protect its goals for inflation and back a government-led campaign to lower interest rates and boost economic growth. It has slashed its benchmark lending rate to banks to 10.75 percent from 24 percent in July, meaning interest rates are now negative when including consumer price inflation of 12.2 percent.

“I think we are getting close to uncomfortable levels,” said Kaan Nazli, senior economist at Neuberger Berman in the Hague, according to Bloomberg. Turkey probably has $6 billion of financing needs in the coming two months, he said.

“Given the reserve-burn was double that in the first two months of the year without a significant amortisisation is concerning,” Nazli said.  

The Turkish lira is continuing to weaken despite the central bank’s support. The lira fell by 0.3 percent to 6.15 per dollar at 12:26 p.m. in Istanbul, taking losses this year to about 3 percent.

The central bank on Tuesday increased the amount of foreign exchange it could borrow from banks, part of the short-term liabilities that are included in its net reserves. The bank’s gross reserves, including gold, stand at more than $100 billion and it has cautioned against focusing on the net figure saying such an approach is misleading.