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ISTANBUL: The Turkish lira slid for an eighth consecutive session on Thursday on concerns about the impact of the Ukraine crisis and sanctions on Russia, particularly the effect on Turkey’s already surging inflation and its widening current account deficit.

The lira weakened 1.5% to 14.9080 against the dollar by 1342 GMT, bringing its losses this year to 11.5%. It had already lost 44% last year and its value has now halved since March 2021.

Fallout from the Ukraine crisis means authorities “have to let the lira depreciate somewhat because of limited reserves,” said Roger Kelly, lead regional economist at the European Bank for Reconstruction and Development.

“More FX reserves would help but the Ukraine situation is likely to blow a big hole in the expected $34 billion tourism revenues this year,” he said.

“They may need to reconsider their low interest rate policy.”

The central bank began an easing cycle in September and has slashed its policy rate by 500 basis points to 14% since then, triggering the currency crisis.

At one point on Dec. 20 the lira hit a record low of 18.4 to the dollar, triggering action by Ankara to underpin the currency with a scheme to protect lira deposits against depreciation, alongside costly forex market interventions.

Under the scheme, the Treasury makes up for the difference between the interest rate on lira deposits and the currency’s depreciation on the maturity date.

The authorities’ actions helped to keep the lira steady until late February but its steep decline in recent weeks risks putting pressure on public finances.


The central bank has met the market’s need for nearly $30 billion of forex since December through its reserves, in addition to direct interventions in the forex market in 2019-2020, when it sold $128 billion to support the lira.

Its net international reserves fell to $18.15 billion last week, data showed on Thursday. Reserves have nevertheless risen from a record low of $7.55 billion in December, thanks in part to a swap deal with the United Arab Emirates and a requirement for exporters to sell 25% of their forex revenues to the central bank.

The lira protection scheme also aimed to reverse a years-long trend of dollarisation in Turkey, which saw locals’ forex holdings rise to nearly $239 billion in December at the height of the currency crisis.

A decline in those holdings since then has slowed in recent weeks, with Turks’ forex and gold holdings at $214.14 billion last week.

Under a new economic plan, President Tayyip Erdogan sought to turn Turkey’s current account deficits to a surplus, while raising growth, exports and employment thanks to low rates.

However, surging energy and commodity prices prompted by Russia’s invasion of Ukraine are likely to widen Turkey’s deficit and stoke inflation, which is already at 54%.

Investor attention was partly focused on a meeting, hosted by Turkey, between the foreign ministers of Russia and Ukraine earlier on Thursday. But the talks made no apparent progress towards a ceasefire in the two-week-old conflict.


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