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Lira Respite Will Come Down to How Far the Central Bank Can Go

  • Gross reserves are $128.5 billion, with $60.5 billion in swaps
  • During stress in 2018, there was no reported intervention
Turkish Lira Reaches Record Low on Erdogan Rate-Cut Demand
Photographer: Nicole Tung/Bloomberg

Turkey’s direct intervention in its currency markets on Wednesday, the first in seven years, shows policy makers are intent on drawing a line in the sand on how far they are willing to tolerate weakness in the lira.

However, how long policy makers are able to buy the currency some respite will essentially come down to the size of the war chest and how willing the central bank is to run down those assets. The Turkish central bank’s gross reserves add up to $128.5 billion, with $60.5 billion coming from the bank’s swap deals, according to latest data released on Nov. 19. When swaps and other liabilities such as required reserves are stripped, Turkey’s net reserves stand at -$35 billion. The bank has repeatedly said that its gross reserves -- the total amount at its disposal at the time -- are more important than net reserves.