Turkey’s forex reserves vulnerable

Turkey’s paltry foreign currency reserves leave it vulnerable to a financial shock in the wake of its military push into Syria, with markets concerned that geopolitical tension and sanctions over the incursion could lead to a reprise of its 2018 lira crisis.

A deal between Ankara and Washington to pause military operations in Syria has come as a respite for Turkish assets, which were reeling since the incursion started nine days ago.

Yet White House sanctions on a number of Turkish ministers and officials remain in place, a US court case against state lender Halkbank for taking part in a scheme to evade US sanctions on Iran continues, and a host of European countries have taken steps to limit arms sales to their Nato ally.

And with a US push for more sanctions — including potential curbs on Turkey’s sovereign debt — many investors fear the market euphoria may be short-lived, with Ankara’s ability to shield its currency from ruckus moving into sharp focus again.

Data published by the central bank on Thursday showed net foreign currency reserves stood at $36.77 billion as of October 11.

Not enough

That’s not much to defend the currency with if it begins to weaken. “Net reserves are negligible in Turkey,” said Tatha Ghose, FX and emerging market analyst at Commerzbank.

“We assume that the Turkish central bank has no real reserve resources to fight lira weakness if and when it arises,” Ghose said. Even countries such as Russia and China with their much greater reserves have found their forex firepower eroded quickly once pressure mounted, he added.