Turkey’s embattled lira fell against the dollar on Thursday after data showed the central bank’s foreign currency reserves declining by almost $2 billion.
The lira fell 1 percent to 5.74 per dollar at 2:25 p.m. in Istanbul, the lowest level since March 25 and taking losses this year to almost 8 percent.
A slide in the reserves in the lead up to last month’s local elections had heightened investor concern about Turkey, leading to a renewed lira sell-off. A currency crisis last year sent the economy into deep recession and a dispute over the result of the elections, coupled with another spat with the United States, have shaken investor confidence once more. The lira had slumped 28 percent against the dollar in 2018.
The central bank’s net reserves fell to 157 billion liras ($27.9 billion) on April 5, data published on Thursday showed. That was a decline of $1.9 billion on a week earlier.
Turkey’s reserves of foreign exchange, which are used to defend a currency in times of financial turmoil, are among the most depleted in emerging markets.
Central Bank Governor Murat Çetinkaya verbally intervened to help prop up the lira on March 28 as the currency fell more than 5 percent on news that the bank’s reserves dropped to $24.9 billion in the week ending March 22. The bank was committed to building its foreign currency and the reserves had risen in the following week to $28.6 billion, Çetinkaya said in an interview with state-run news agency Anadolu.
Investors have been speculating that the central bank and state-run lenders under the control of Turkey’s sovereign wealth fund are selling dollars for liras to unofficially support the currency. Çetinkaya maintains that nothing untoward is taking place in central bank policy.
Confidence in the central bank and government is at a low ebb after President Recep Tayyip Erdoğan called for lower interest rates last year, prompting policymakers to delay rate increases. His government has also introduced a series of unorthodox steps to slow inflation and encourage more lending by banks.
The lira also fell on Thursday after Treasury and Finance Minister Berat Albayrak announced a new economic plan for the country. Some economists, including Nora Neuteboom at ABN Amro, said the plan, announced on Wednesday, was not comprehensive enough and lacked detail.