Consultant warns that Turkey will run out of foreign currency reserves in its liabilities this week 

Turkey's central bank will have to deal with a lack of foreign currency in its liabilities this week, according to a report by Canadian consulting firm TD Securities that is published by Turkey's news portal Ahval. The bank may also exhaust its total foreign reserves by the third week of July, or by the third week of September at the latest, according to the FXStreet currency analysis website.  

At the current rate of depletion, the central bank "will consume its foreign exchange reserves without gold by mid-June, and total reserves, including gold, by the third week of July," Cristian Maggio, head of emerging market research at TD Securities in London, told Bloomberg. "It is likely that the country will impose strict capital controls or seek international support before running out of reserve liquidity," the analyst said.

"Before all reserves are depleted, we believe the Central Bank will raise interest rates as much as it can and probably introduce strict capital controls," said a stockbroker consulted by the FXStreet website. "Turkey can also seek support outside its borders, if necessary," said Maggio. Turkey's net foreign exchange reserves were less than $1 billion, according to official estimates, before monetary policymakers decided last week to lower the limits on banks' foreign exchange trading with the central bank. 

The regulator has relied on exchanges with state banks to finance operations on the foreign exchange markets in support of the lira. The Turkish currency is being traded at a price of seven units per dollar, its lowest level since the currency crisis in August 2018. 

The Turkish currency is likely to weaken to eight lira to the dollar early next year if the global trend of a stronger dollar continues, TD Securities said in its report. The lira even fell by 0.2% to 6.985 per dollar on Monday. Turkey's gross currency reserves fell by more than $2 billion the week of April 17, according to data released by the central bank last Friday. The decline reduced the reserves to $53.9 billion, a loss of $5.5 billion from the previous month.  

"The Central Bank's reserve position is not reassuring," Kaan Nazli, chief economist and portfolio manager at investment firm Neuberger Berman, told Bloomberg. Despite this, gold reserves grew to $33.9 billion from $28.3 billion a month ago, helped by an increase in the price of this precious metal. 

The Turkish authorities have tried to strengthen the local currency and prevent its devaluation since the last local elections, but the efforts have not been effective due to the costs of the country's expansive foreign policy, the continued cuts in interest rates and now the spread of the coronavirus. The reduction of foreign currency reserves scares investors, who are concerned that Turkey may not have enough foreign currency in case international markets stop lending to the country.  

"The main concern is that there will be an upsurge in foreign debt repayments, while the tourism sector is not in a position to attract flows due to the standstill in international travel," Kaan Nazli of the investment firm Neuberger Berman told Bloomberg.  Just under half of the $168.5 billion in foreign currency debt due in the next 12 months is bank debt, according to the latest data published by the central bank. By comparison, the government only has $4.4 billion of debt to roll over in the same period.