The excess lira liquidity in Turkey’s banking system on April 7 turned negative for the first time since September, BloombergHT reported on April 8.

When the central bank buys FX, it provides local banks with lira in exchange, boosting the excess lira liquidity in the system.

The excess liquidity surpassed one trillion lira at its heights, observed only a few weeks ago.

Chart by BloombergHT: Excess lira liquidity saw a record high of Turkish lira (TRY) 1.35 trillion in January.

Since Istanbul mayor Ekrem Imamoglu was detained on March 19, the central bank has been instead selling FX to keep the lira stable, absorbing lira liquidity from the system.

Although the authority has also launched an aggressive government bond buying programme (providing lira liquidity in exchange for debt papers) to avoid further boosts in interest rates, its FX sales have reached levels that absorb the extra liquidity provided through this channel.

The authority also sells liquidity bills, holds depo auctions and hikes its reserve requirements for the sake of absorbing excess lira liquidity from the system.

On April 8, BloombergHT also reported that the 3-month implied volatility of the USD/TRY pair remains above the 20%-level, suggesting that the market expects sharp lira devaluations ahead.

Chart by BloombergHT: The 3-month implied volatility of the USD/TRY pair stood at 23% on April 8.

Additionally, BloombergHT reported that carry traders closed $3.3bn worth of lira positions in the week ending March 21 and another $7.2bn of positions in the week ending March 28.

Chart by BloombergHT: Cumulative carry inflows to Turkey surpassed $40bn when the derivatives stock saw $36.5bn as of March 14.

On April 7, bne IntelliNews reported that foreigners sold $3.9bn worth of lira-denominated papers in the two weeks ending March 28.

On April 8, @VeFinans wrote that Turks’ FX deposits rose by $5.5bn between March 14 and March 18 in addition to combined portfolio outflows of $14.4bn ($10.5bn carry, $1.1bn equities and $2.8bn government’s lira bonds).

In the same period, the central bank’s net reserves excluding off-balance sheet swap items declined by $27.7bn while the authority has also sold $2.3bn worth of lira-settled forward contracts to local lenders, bringing the total intervention to a clean $30bn.

The ruling regime still has the space to burn through a few dozen billions of dollars more without being hurt. Putting a figure on it, it looks like it has the space to burn through an additional $60-70bn without getting wounded.