Turkey has upped the ante in defence of the lira, but with hard cash reserves far smaller than those of many developing economy peers, FX intervention may not be feasible for long should investors resume their exodus from emerging markets.
Faced with year-to-date lira losses of almost 20 percent to the dollar and rising inflation, the central bank this week mounted its most aggressive defence of the currency yet, selling a record $1.1 billion on Wednesday and Thursday and making changes to banks' reserve requirements.
The action succeeded in lifting the lira well off record lows. But any further FX interventions will put Turkey in serious danger of depleting a reserve stash that is its primary buffer against a large balance of payments deficit.
Reserves stand now at around $85 billion, far short of the hundreds of billions of dollars held by other comparable emerging market countries and down more than 10 percent from July as a result of the central bank's daily dollar auctions.
"This speed of reserve drawdown is not sustainable," said Manik Narain, emerging markets strategist at UBS in London. "Turkey's reserves in terms of external debt coverage or import coverage are among the lowest in emerging markets."
In contrast, South Korean interventions throughout September cost it $9 billion but made a dent of less than 3 percent in its reserves, the world's eighth-largest.
Central bank data shows $132 billion in external debt payments due in the coming year, mostly private sector. Add in the huge current account gap and the liability mounts to over $200 billion - more than double its current reserve level.
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