Turkey spends money it doesn’t have

LONDON, Dec 1 (Reuters Breakingviews) - Minutes before President Tayyip Erdogan delivered a speech renouncing high interest rates once again, the Turkish central bank said it was selling dollars to support the lira. The bank has $25 billion of net reserves as of November, down from $28 billion the month before. But that includes another $48 billion of swaps from local banks, without which reserves are firmly in negative territory.

It’s a flawed bid to support Erdogan’s ultra-loose monetary policy, which has caused the lira to fall more than 40% versus the dollar this year. Propping up the currency might slow Turkey’s descent into hyperinflation, but the country’s pot of dollars risks running out. The bank sold some $128 billion to steady the lira in 2019-2020 and still had to hike rates. When net reserves were at $28 billion in August 2020, it took just five months to run them down to $11 billion – the lowest since at least 2003. The lower reserves fall, the more likely another depreciation becomes. Erdonomics is a pricey endeavour. (By Dasha Afanasieva)