The Turkish central bank’s net FX position (net of off-balance sheet derivative items) fell to $7.6bn on April 28 from $58.9bn on March 19, the day on which Istanbul mayor Ekrem Imamoglu was detained in what was widely viewed as a political operation of Turkey’s Erdogan regime, according to calculations by @e507.

During the period, the reserve figures benefitted from an 11% increase in the gold price, according to Emre Akcakmak (@akcakmak) of East Capital.

If the gold price had remained unchanged, the net FX position would have fallen to minus $1.1bn on April 28.

When the gold price change is adjusted, Turkey’s total intervention in the FX market is calculated as having surpassed $60bn for the sake of keeping the USD/TRY pair at the 34s.

In its trough period, the net FX position saw minus $60-70bn levels, suggesting that the government still has ammunition to draw to keep its trademark “straight lines” on the USD/TRY chart.

Rate hikes fall short, hopes pinned on PR

Turkey’s policy rate is currently locked at the overnight lending rate, which stands at 49%. Excess liquidity dried up with FX sales and the banking system is currently borrowing from the central bank. The real sector has again been making loud objections over a lack of access to loans. The costs are, meanwhile, reaching into the 70-80%s.

Last week, Turkey’s foreign minister Mehmet Simsek launched a PR offensive. He visited the US together with the Turkish central bank governor. The duo tried to reassure carry trade customers.

So far, no reversal in capital flows has been observed.

Simsek has also been circulating his assessment that Turkey will receive billions of dollars from development banks in coming years.

This week, he went live on Turkish TV to assure Turks that all is going well.

The government’s proxies in the media have also been working overtime. Accordingly, the pressure on the lira has eased and Turkish banks’ external loan rollover costs have been falling.

Unprecedented outflows

Since March 19, foreign investors have pulled money out of Turkey on an almost apocalyptic scale, according to Robin Brooks (@robin_j_brooks) of Brookings Institute.

“We’ve never seen outflows this big before, not even during COVID,” he wrote in a tweet, adding that this was why the FX reserves had fallen so sharply.

Although the USD/TRY remains stable with heavy intervention amid capital outflows, the 10-year domestic government bond yield has been breaking records.

The central bank recently launched an aggressive government bond buying programme to prevent a total meltdown.

However, a consensus has been set at home and abroad that the government will deliver a lira devaluation sooner or later. And everyone is cutting their lira exposure.