Turkey’s central bank will run out of foreign currency reserves, net of liabilities, this week, according to TD Securities.
The bank could also exhaust its total foreign exchange reserves by the third week of July, or by the third week of September at the latest, economists at the broker said, according to currency analysis website FXStreet.
“Before all buffers are depleted, we think the CBRT will hike rates dramatically and likely introduce tight capital controls,” the broker said. “Turkey may also seek multilateral support if this scenario materialises.”
Turkey’s net foreign currency reserves were less than $1 billion, according to calculations using official data, prior to a decision last week by monetary policymakers to slacken limits on banks’ currency swaps with the central bank. The measure may raise $5 billion in swap lines, Reuters reported at the time.
The central bank has relied on the swaps with state-run banks to fund interventions in the foreign exchange markets in support of the lira. The lira is trading just shy of 7 per dollar, close to its lowest level since a currency crisis peaked in August 2018.
The lira will probably weaken to almost 8 per dollar by early next year, should the global trend of a stronger dollar persist, TD Securities said.
“These reserve dynamics show the risks for both Turkish rates and the USD/TRY is higher, sooner,” the broker said.
The lira fell 0.2 percent to 6.985 per dollar on Monday.
Turkey’s gross foreign currency reserves dropped by more than $2 billion in the week to April 17, central bank data published on Friday showed.
The decline reduced the reserves to $53.9 billion, a loss of $5.5 billion compared with a month earlier. But gold reserves grew to $33.9 billion from $28.3 billion a month ago, helped by an increase in the price of the precious metal.
