
The Turkish central bank is employing short-term borrowing to bolster the lira. Investors and currency traders are uneasy with the actions. Laura Pitel and Adam Samson report for the FT:
Turkey’s central bank has bolstered its foreign currency reserves with billions of dollars of short-term borrowed money, raising fears among analysts and investors that the country is overstating its ability to defend itself in a fresh lira crisis.
Reported net foreign reserves held by the central bank stood at $28.1bn in early April — a sum that investors already believed was inadequate because of Turkey’s heavy need for dollars to cover debt and foreign trade. But calculations by the Financial Times suggest that this total has been enhanced by an unusual surge in the use of short-term borrowing, or swaps, since March 25. Stripping those swaps out, the total is less than $16bn.
Analysts and investors, already skittish about putting money to work in Turkey given the direction of economic policy under President Recep Tayyip Erdogan, are concerned that the state of the financial defences leaves the country ill-equipped to deal with any potential market crisis.
The lira dropped as much as 1.9 per cent in morning dealings in London on Thursday, reaching TL5.847, the weakest point since October 2018, Refinitiv data show.
In a written response to questions from the Financial Times, the central bank acknowledged publicly for the first time that its use of currency swaps “may impact reserve figures”, but said its method for accounting for them was in “full compliance with international norms”.
However, some market watchers were uncomfortable. “I don’t think these are conventional operations and they are somewhat less than transparent,” said Julian Rimmer, an emerging-market equities trader at Investec Bank. He added: “A central bank cannot risk being seen as economical with the truth.”
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