The erosion of Turkey’s foreign currency reserves is a credit negative and Central Bank use of reserves to prop up the Turkish Lira currency poses renewed questions on its transparency and independence, Moody’s Rating Agency said on April 1.
“Intervention to support the lira is contrary to the Central Bank’s longstanding policy to allow the exchange rate to float freely and poses renewed questions about the transparency and independence,” Moody’s said in a note, Reuters reported.
The renewed slip in Turkey’s financial markets and uncertain policy reaction to recession raises a risk of further capital flight, Moody’s said, adding that the results of local polls will likely determine the future path of macroeconomic policy.
“This weekend’s municipal elections results will likely determine the future path of macroeconomic policy and therefore whether the latest market shock persists or dissipates.”
The Central Bank of Turkey aims to reinforce and effectively manage the country’s reserves, consistent with a steady rise, the bank’s governor said last week.
Murat Çetinkaya added the bank continues to decisively implement its reserve-building policy.
“Although reserves may fluctuate due to periodic factors, there has been a consistent uptrend in reserves in the medium term,” Çetinkaya told Anadolu Agency on March 28.
“Over the last week, our gross reserves have increased across all items by $4.3 billion and by March 27 reached $96.7 billion. During the same period, our net reserves also rose $2.4 billion to $28.6 billion,” he said.
Hurriyet Daily News