Double digit: Pain points for Turkey's lira at 10 to the dollar

November 12, 20214:54 PM UTCUpdated ago

A money changer counts Turkish lira banknotes at a currency exchange office in Ankara, Turkey November 11, 2021. REUTERS/Cagla Gurdogan

LONDON, Nov 12 (Reuters) - A slide in Turkey's lira to a record low of 10 to the dollar has cast a spotlight on the country's economic vulnerabilities. read more

Below are five charts showing economic and fiscal pressure points for Turkey:

1/INFLATION

Turkey's annual inflation rate rose to 19.89% in October - its highest in more than 2-1/2 years - as the central bank, under political pressure to provide more monetary stimulus, has aggressively cut its policy rate in recent months.

While the inflation reading was a touch lower than expected, analysts saw little reason to celebrate, with many predicting this could speed up rate cuts in the near future.

Turkey falling rates and rising inflation

2/THINNING RESERVES

Turkey's foreign currency reserves have been under pressure for some time and leave little room for manoeuvre to help stem the decline of the lira.

Latest data on Thursday showed the central bank's net international reserves fell to $31.85 billion as of Nov. 5, from $32.64 billion a week earlier.

Reuters Graphics

3/DOLLARISATION COMEBACK

With many foreign investors having reduced their exposure to Turkey's financial markets, the lira is chiefly driven by domestic forces.

Local individuals and firms have a track record of swapping their currency exposure from lira into dollars in times of strife.

FX held by locals and firms in Turkey

4/TILTING DEBT

Turkey's external debt-to-GDP ratio of around 60% remains in line with emerging markets as a whole, but while the private sector has deleveraged external debt in recent years, public sector debt has expanded.

Barclays calculates that $58 billion of public sector debt - including FX swaps with other central banks - are due in the next 12 months, including $2 billion in November.

Turkey government debt

5/PRICEY ENERGY

One of the largest importers of gas in Europe and a major importer of crude oil, Turkey has felt recent energy price rises more than many of its emerging market peers.

These increases are bound to add to upward price pressures in the broader economy, with crude oil prices in lira having gained more than 100% since the start of the year.

Gas use for heating and small-scale manufacturing is subsidised in Turkey, though many long-term contracts for supplies have yet to be renewed.