Turkey: Burning reserves and setting the USD/TRY fire – TDS


The pace of the CBRT's reserve burn has accelerated in response to TRY weakness. Economists at TD Securities estimate that the CBRT will completely exhaust Net International Reserves this week. 

Key quotes

“Given the current trend, we estimate that total reserves will be depleted at the latest by the 3rd week of September, at the earliest by the 3rd week of July.” 

“Before all buffers are depleted, we think the CBRT will hike rates dramatically and likely introduce tight capital controls. Turkey may also seek multilateral support if this scenario materializes.”

“While we currently forecast USD/TRY to peak just shy of 8.00 by early next year, if the global trend for a stronger USD does not turn, these reserve dynamics show the risks for both Turkish rates and USD/TRY is higher sooner.”

 

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