Turkish Lira in free fall

The central bank’s net FX reserves have fallen sharply to nearly $25 billion from $40 billion this year

Turkey’s lira tumbled 1.4% 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.

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 that could further move markets, analysts said.

The lira TRYTOM=D3 slipped for a fifth straight session and stood at 7.1615 against dollar at 0901 GMT, from 7.065 the day before. Headed toward a record low of 7.24, it was the worst performer among major emerging market currencies.

The central bank’s net FX 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% so far this year.

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

“They are trying to achieve too many things at once – they are trying to keep rates low and the currency stable, and they don’t have the reserves,” said Peter Kisler, EM portfolio manager at North Asset Management.

“The one thing that is stopping me from being more bearish is the possibility of still getting a swap line from the Federal Reserve,” he said.

As they try to address the cash crunch, Turkish authorities have reached out to the Fed and other central banks to seek a possible currency swap facility. But no deal has been announced and any deal with the Fed would require Turkey to meet several tough monetary and financial requirements.

source nasdaq.com