Lira Craters To New Record Low As Turkish Central Bank Burns Billions In Futile Attempts To Halt Collapse

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by Tyler Durden
Monday, Dec 13, 2021 - 02:14 PM

Another day, another plunge in the Turkish lira, which this morning cratered to a new all time low.

The USTRY rose above 14 for the first time ever and then catapulted as high as 14.75, after Turkey’s new Treasury and Finance Minister Nureddin Nebati told Haberturk newspaper in a phone interview that "we won’t raise the interest rate. You will see that we can do this without raising rates.” A downgrade by S&P of Turkey's sovereign credit rating outlook to negative did not help.

Responding to a question on whether rate cuts continue, Nebati says “I don’t know that” but in a faint trace of sanity, said that the lira is not being attacked from abroad - rejecting a popular narrative spread by his boss Recep -  adding that there’s only “a few manipulative, speculative transactions inside” the country. He also said that there’s no problem regarding Turkey’s macroeconomic indicators. And if one excludes hyperinflation and currency collapse, he is right.

As Bloomberg's Netty Ismail writes, the lira's unprecedented is unlikely to see any reprieve ahead of what’s likely to be Turkey’s fourth consecutive interest-rate cut. Policy makers will probably slash the benchmark rate by 100 basis points on Thursday despite the lira’s plunge and soaring inflation. Shockingly, Turkey’s real rate is currently minus 631 basis points, the lowest in major emerging markets. That will widen further with the prospect of another rate cut and accelerating inflation even as it sends any remaining savings into the relative safety of the stock market (as well as gold and crypto).

Meanwhile, options traders see a 56% probability that the lira will touch 15/USD in a week; at this rate, that level may be taken out as soon as today, despite yet another intervention by the Turkish central bank. As a reminder, the CBRT spent over $1 billion on its previous two interventions, and it continues to burn billions in foreign reserves every day when it seeks to contain the crash.

Of course, such interventions are the definition of futility since absent a rate hike, the lira will keep sliding; running out of FX reserves will only make matters worse for the Turkish currency... and country. As Goldman calcualted late last week, as of December 8, net foreign assets of the TCMB were US$9.9bn, down by US$0.5bn from a week ago. The TCMB swaps and the stock of the FX deposit facility amounted to US$45.6bn, up by US$1.4bn compared with a week ago. The stock of the FX deposit facility is now at US$7.0bn and swaps are at US$38.6bn (Exhibit 9). Most ominously, the net reserves excluding swaps with banks and other central banks are, on our estimates, at negative US$49.7BN...

... as the central bank uses dollar deposits from commercial banks to stabilize the currency a move that is guaranteed to end in disaster and hyperinflation.