Turkey risks damaging confidence in the lira further by using “borrowed” reserves to defend its exchange rate and recent developments put its current sovereign debt credit rating at risk, S&P Global Ratings said on Thursday.
The ratings agency said in a statement emailed to Reuters that the greater part of the central bank’s FX reserves are borrowed from households indirectly via reserve requirements against FX and gold deposits or through Turkish commercial banks via swap lines.
“Using these borrowed reserves to defend an exchange rate appears to us to risk damaging confidence in the lira even further, and potentially raising financial stability questions,” S&P said, which has a current rating for Turkey of B+ with a stable outlook.
The lira crashed almost 30% last month as the central bank made its third interest rate cut is quick succession despite soaring inflation. The central bank on Wednesday said it had intervened in currency markets to prop up the lira. read more