Turkish State Energy firm to tap CBRT forex reserves to limit TRY losses - Reuters

Turkish state energy firm BOTAS will tap the CBRT's forex reserves to help support the lira as gas prices continue to climb ahead of peak consumption during winter months, Reuters reported citing two officials. The Turkish government reportedly hopes the move to draw on the central bank's foreign exchange reserves will help to limit any further losses for the Turkish lira, which has weakened to just under 10.50 per dollar on Wednesday.  

Reuters notes that an increase in demand from BOTAS could limit the tepid recovery seen in the CBRT's forex reserve holdings, which were depleted in 2019 and 2020 after the bank spent some $128 billion to fight TRY weakness. At present, the CBRT has $125B in reserves, though net holdings are negative once swaps with local banks are factored into the calculation. Reuters cited one trader as saying that BOTAS demand for FX reserves could exceed $1B per month this winter. 

Market Reaction

USD/TRY has seen a modest blip higher in recent trade from under 10.46 prior to the news to current levels around 10.48.

The Turkish lira remains under severe pressure, with USD/TRY having surged above 10.50 earlier in the session for the first time ever. Traders are concerned about the fact that the CBRT is expected to continue cutting interest rates despite Consumer Price Inflation (CPI) nearing 20% YoY in October. There are fears that Turkey might be headed towards hyperinflation and for a full-scale currency and balance of payments crisis. If higher demand from domestic companies puts downwards pressure on CBRT forex reserves, it hampers the ability of the central bank to purchase liras and fight currency weakness.