Turkey’s foreign currency reserves have fallen by billions of dollars since the start of the week, suggesting that aggressive interventions have helped the lira recover from record lows.
The lira fell significantly after the latest series of rate cuts, but it rallied on Tuesday after President Recep Tayyip Erdogan revealed new savings plan aims to encourage locals to hold lira deposits.
But at the same time, the country’s net foreign assets fell by $5.9 billion in the first two days of this week to minus $5.1 billion, according to Financial Times calculations based on central bank data.
Turkey’s central bank has not announced any official interventions this week and declined to comment on whether it has sold dollars to support the lira in recent days. But its erosion of foreign assets suggests that this has played a key role in the lira’s recovery.
Ugur Gurses, a former central bank official, said the coin’s 50% rally from the nadir on Monday was explained at least in part by a major “backdoor interference”.
One London-based analyst, who asked not to be named, said he calculated a $6.9 billion intervention on the same days – estimates ranged from $5.5 billion to $7 billion . Turkish bankers reported “a very active and concerted effort to make Erdogan’s announcement sound good,” he said.
The Turkish lira hit a record low of 18.4 against the US dollar on Monday, down 60% year-on-year, but has enjoyed a major rebound after Ankara announced a pair of plans, which were announced by Ankara. supported by the Ministry of Finance and the Central Bank of the country, to protect lira savings. and consolidate currencies by indexing them to foreign currencies.
On Wednesday, Erdogan announced that Turkey was winning the financial war. “We are fighting against the oppression of the people with inflation and interest rates,” he said in a televised address. “This time, we will get the results we want.”
Analysts estimate that the aggressive intervention earlier in the week would bring the total number of central bank interventions this month to between $15 billion and $17 billion.
This scale is likely to raise alarm among analysts about the health of Turkey’s foreign currency reserves.
Bank vaults rebounded earlier this year after plummeting to a 20-year low following an earlier attempt to defend the lira while rate cuts burned through more than $100 billion.
Ratings agency Fitch, which earlier this month changed its view on Turkey to “negative”, expressed concern about an announcement in early December that the central bank would resume interventions to lira support. The agency warned that, if maintained, the policy “risks further weakening the central bank’s already weak international reserve component.”
Concerns about Turkey’s reserves come as analysts warn that new savings plans announced by the president risk further fueling the country’s already sky-high inflation, which in The official level was 21% in November.
Some analysts argue that the new plan leads to secret rate hikes or currency pegs and that the central bank may be forced to print more money to cover its new obligations.
Hakan Kara, the central bank’s chief economist before being fired in 2019, wrote on Twitter that the government had “handled” inflation and was adopting a semi-fixed exchange rate.
“In 10 years, the demand for [low] he said. “We still don’t have a stable monetary policy. This system will also need to be modified. ”
“You won’t have the exchange rate spiral and inflation rate like before, but it will be very difficult to bring inflation into play,” said Kieran Curtis, an emerging market debt manager at Aberdeen Standard Investments in London. back to a number”. The large inflation differential between Turkey, the US and the euro area will weaken the lira and further increase fiscal costs, he said.
Curtis added: “Investors may be encouraged to buy Turkish assets as the scheme makes capital controls less likely in the future, but the amounts will be very small. Aberdeen sold the Turkish debt in March and has not purchased any since.
Mr. Erdogan said those who worry the lira could continue its downward trend are due to a “soft mentality” and regulators are pursuing legal cases against those trying to weaken the lira with way to encourage people to buy foreign currency.
Additional reporting by Jonathan Wheatley in London
https://www.ft.com/content/ac397d03-d738-42ca-8a59-4a2179a6f8b4 Turkey’s drop in foreign assets hints at ‘positive’ lira intervention