Turkey strains to keep lira on short leash

Foreign-currency reserves now stand under $35 billion, the lowest in half a year

Turkey’s central bank is bearing the brunt of an effort to shore up the lira and the costs are starting to add up. From a peak in December, its net foreign-currency reserves have dropped around $9 billion, according to Bloomberg calculations using official data. The stockpile now stands at just under $35 billion, near the lowest in half a year, and covers just a fifth of Turkey’s foreign obligations over the next 12 months.

If the monetary authority’s short-term off-balance sheet liabilities are excluded, its pot of money could be less than half of that. As of December, the policymaker had $18.2 billion of outstanding swaps coming due over the next year alone.

In a sign of growing concern over the state of its buffers, the central bank on Tuesday increased the amount of foreign exchange it could borrow from commercial lenders. In the first half of 2019, it had boosted these operations drastically to make up for a sudden drop in reserves.

The rundown comes despite a $4 billion Eurobond sale in February, further masking the scale of the depletion, which has accelerated over the past month. Net reserves are calculated by subtracting foreign-currency liabilities from foreign-currency assets and adding back the Treasury’s balance.

If public deposits are excluded from the calculation, and assuming there’s been no change to the central bank’s outstanding swap stock since December, the policymaker’s arsenal stood at $8 billion at the end of last week, according to Deutsche Bank.

The central bank says it’s misleading to focus on the net figures and urges investors to consider its gross reserves, which stand at just over $104 billion, including gold. Some analysts also point out that short-term borrowings can be rolled over indefinitely since the bulk of them are conducted with local banks.