Roosting chicken

7 May 2020 By Dasha Afanasieva Follow @dasha_reuters

The lira fell to a record low against the dollar. The central bank set interest rates too low in the past, then depleted FX reserves to limit the exchange-rate damage. Its war chest is too small to prevent further depreciation. Disaster looms for firms with foreign-currency debt.

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The Turkish lira depreciated to a record low on May 7, becoming weaker than when U.S. sanctions tipped Turkey into a full-blown currency crisis.

The lira has lost 18% of its value so far this year and was trading at 7.24 against the dollar at 1112 GMT on May 7.

The Turkish central bank’s gross reserves were $53 billion as of April 24, the lowest since 2005. Net foreign-exchange reserves have dropped to around $25 billion in April from $40 billion in January, according to central bank data.

Turkey’s trade ministry said on May 4 that imports fell 32.2% compared with 2019, while exports dropped 41.6% in April. As a result, Turkey’s trade deficit widened 13.4%, to $3.4 billion.

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