Turkey central bank’s free FX reserves likely dwindling

Turkey's lira recovered marginally yesterday as EM FX enjoyed a pause from selling pressure, although the currency underperformed key peers such as ZAR on the day. The CBT's latest projections depict a slowing economy during H2 2015, dragged down by lacklustre consumer demand, CBT governor, Basci, also noted at a presentation that inflation expectations are deteriorating amidst volatile global and local markets. 

Moreover, latest CBT data show a 0.1% m/m decline in Turkey's FX reserves during August, which came despite state energy utility, BOTAS, taking up less FX from the CB during the month and despite more FX repayment by exporters within the export rediscount credit mechanism. 

The difference is clearly because of increased FX sales, which CBT has had to keep making, in order to stabilise the lira, CBT sold $1.1bn in August alone for this purpose. 

"As a consequence of such FX sales, it is estimated that CBT lost more than $1bn of 'free' FX reserves between end-Q2 and end-Q3, free FX reserves now stand at $31bn vs. $32.7bn in end-June, obviously a lira-negative trend", says Commerzbank.