Media: Collapse of Turkish central bank’s reserves threatens exchange rate shock

The sharp decline in the level of gold and foreign exchange reserves of the Turkish central bank raises fears of an ‘exchange rate shock’ in the country, Report informs referring to Dünya newspaper.

In case of the termination of foreign exchange interventions, the dollar may begin to trade against the national currency - the lira - in the range of 25-30, having noticeably strengthened against the current rate, which so far doesn’t exceed 20 liras.

According to the central bank, on May 5 its reserves amounted to $68.4 billion, while as of May 12 they fell by almost $8 billion, to $60.8 billion.

“The collapse in reserves, which has sapped the ability of the central bank to intervene in exchange rates, has increased the perception that there are ‘no reserves left to hold the exchange rate’ and fears of an ‘exchange shock.’ Exporters reacting to the dollar, which is 19.5 liras on paper and 22.5 liras in the real market, they want the exchange rate to be at least at the level of 25 liras. In economic circles, they say that if interventions are canceled, the exchange rate could be in the range of 25-30 liras per dollar,” the newspaper reports.

The lira is currently trading at 19.56 against the dollar, but in currency exchange offices in Ankara and Istanbul, the dollar is bought at a rate above 20, and sold at 21 liras and above. A year ago, the lira against the dollar was at the level of 16-16.5 liras.

As for annual inflation, according to Turkstat, in April it amounted to 43.7%, having decreased over the month from 50.5%. The Inflation Research Group (ENAG) says the figure is over 105%. The Turkish central bank predicts that inflation will reach 22.3% by the end of the year.