The thirst for change in Turkey plunges the lira to 16.3 against the dollar

The Turkish lira fell on Wednesday to 16.35 against the dollar, the lowest level since the December crisis, as analysts put in doubt the ability of the authorities to continue to ensure its stability without new sources of foreign currency.

The lira fell 9% this month and 19% questyear, despite months of costly interventions in to which the central bank sold dollars to ease pressure on the local currency and the state supported a safe deposit scheme in foreign currency.

The currency dropped to the level of 16.3515 against the dollar and stabilized at 16.3300 at 1257 GMT after a 1% drop.

On December 20, the Turkish currency hit an all-time low of 18.4 after a series of unconventional interest rate cuts, sending it down 44% for the full year. In response, inflation has since risen and hit 70% in April.

The lira mostly stabilized at the beginning of questyear, due to the government plan, known as KKM, which protects some depositors from a devaluation of the lira. The central bank has also been trying to meet the market’s exchange rate needs since the December crisis.

But these efforts to maintain currency stability have negatively impacted Turkey’s already depleted reserves, according to the bankers.

“We estimate that sales in The Turkish Central Bank’s foreign currency surpassed $ 30 billion in the January-April period, “economist Haluk Borumciki said, adding that balance sheet data showed that sales were heavier in May.

He added that after the swap adjustment, the bank’s net foreign reserves fell by another $ 7.7 billion after the first 20 days of May.

Data last Friday showed that net reserves in Turkey’s central bank currency fell by about $ 3.5 billion to $ 11.53 billion in the week ending May 13. Bankers estimate it fell to $ 10 billion or less in the following week.

Economists say rising interest rates could help ease pressures on the lira and reserves. But President Recep Tayyip Erdogan’s opposition to tightening monetary policy has few people expecting a turnaround in any time, even when the central bank meets on Thursday.

“I’m in strong downward pressure is increasing, “said Robin Brooks, chief international economist at the Institute of International Finance. “We believe that the risks of a large overshoot – as happened in 2021 – are high, given the growing risks of a global recession and the significant expansion of credit. in Turkey, “he said in a tweet on Twitter.

War in Ukraine started hurting the lira in March, when Western sanctions on Russia pushed energy prices up, sent Turkey’s huge import bill skyrocketing and fueled inflation.

The cost of Turkish debt insurance against default rose on Tuesday, to the highest level since the 2008 global financial crisis. IHS Markit data showed that 5-year default swaps rose to 730 basis points from 704.

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