A money changer counts Turkish lira banknotes at a currency exchange office in Ankara, Turkey, September 27, 2021. REUTERS/Cagla Gurdogan/

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ANKARA, May 25 (Reuters) – The Turkish lira slipped past 16.4 against the dollar on Wednesday to its weakest level since the crisis bottomed in December, as analysts questioned the authorities’ ability to continue to stabilize it without new sources of foreign exchange.

The pound has weakened more than 9% this month and 19.5% this year, despite costly interventions in which the central bank sold dollars to soften the blow and the state backed a system of exchange-protected deposit.

The currency plunged as low as 16.4025 and settled at 4:40 p.m. to 3:50 p.m. GMT, after falling 1.4% against the greenback.

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On December 20, the emerging market currency hit a record low of 18.4 after a series of unorthodox interest rate cuts sent it down 44% for the year as a whole. In response, inflation has since jumped to 70% in April.

The lira remained stable at the beginning of this year due to the government scheme, known as KKM, which protects certain depositors against the depreciation of the lira. The central bank has also sought to meet the market’s currency needs since the December crisis.

But those efforts to keep the currency stable have strained the already depleted reserves of the Central Bank of the Republic of Turkey (CBRT), bankers say.

“We estimate that CBRT currency sales topped $30 billion between January and April,” said economist Haluk Burumcekci, adding that balance sheet data showed sales were more intense in May.

Adjusted for swaps, the bank’s net international reserves fell another $7.7 billion after the first 20 days of May, he said.

Data from last Friday showed that the central bank’s net international reserves fell by some $3.5 billion to $11.53 billion in the week to May 13. Bankers calculate they fell to $10 billion or less the following week. Read more

Economists say the rate hikes could help relieve both the lira and reserves. But President Tayyip Erdogan’s opposition to the policy tightening has left few expecting a turnaround anytime soon, including when the bank meets on Thursday. Read more

Robin Brooks, chief international economist at the Institute of International Finance, said “intense depreciation pressures” were mounting. “We believe the risk of a severe overshoot – much like in 2021 – is high, given the growing risk of a global recession and strong credit expansion in Turkey,” he said on Twitter.

The war in Ukraine began hurting the lira in March as Western sanctions on Russia drove up energy prices, pushing up Turkey’s already hefty import bill and fueling inflation.

On Tuesday, the cost of insuring Turkish debt against default rose to its highest level since the 2008 global financial crisis. IHS Markit data showed that credit default swaps (CDS) at 5 years had gone from 704 points to 730 basis points.

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Reporting by Nevzat Devranoglu Writing by Daren Butler Editing by Jonathan Spicer and Frank Jack Daniel

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