Turkish central bank sells foreign reserves to deal with lira crash Business and Economic News

The Turkish central bank sold declining foreign exchange reserves to protect the lira for the first time in seven years.

The Turkish central bank struggled to keep up with the falling lira, and intervened directly in the foreign exchange markets for the first time in seven years.

The central bank sold foreign currencies, including the U.S. dollar, to counter the “formation of healthy prices” in the market, according to a note that did not provide a specific figure. People who know the subject have put up sales of about $ 1 billion.

Initially the lira rose after the forecast, rising 8.5% against the dollar, then reducing gains in the session.

The astonishing decision taken by the monetary authority to reduce its asset reserves shows that policymakers are concerned about the free fall of the currency. The big question remains: how much longer can Turkey rely on the currency it is immersing in its reserves?

However, despite poor opinion polls and growing disagreement, President Recep Tayyip Erdogan has continued to advocate for lower borrowing costs. The central bank “can take the necessary action if necessary,” Erdogan told reporters in Ankara on Wednesday.

Since Turkey began lowering interest rates in September, the lira has lost more than 30% against the dollar, deepening the country into an economic crisis.

The key difference in Turkey’s announcement today is that the intervention came directly from the central bank, not from state lenders, who have frequently taken secret actions to support the lira.

The millions spent trying to push the pound (about $ 165 billion starting in 2018) have become a political turning point in a country struggling with the consequences of Erdogan’s erratic policies, rapid inflation and an unstable economy.

“It reflects how serious the situation is,” InTouch Capital analyst Piotr Matys said. “But it may not be enough. Turkey does not have enough FX reserves to sell a large amount of dollars on a regular basis. “

Photo of Turkish currency reserves:

• Gross reserves are $ 129 billion, and there are $ 61 billion from the bank’s exchange agreements, according to the latest data released on November 19th.
• When other liabilities such as exchanges and required reserves are removed, Turkey’s net reserves are negative for $ 35 billion.

The bank has repeatedly stressed the importance of its gross reserves, the total amount it had at the time, instead of the net reserves remaining in negative territory. He has previously said that net bookings would be misleading for valuations.

On Tuesday, Erdogan pledged to continue lowering interest rates until the 2023 election. He vowed not to try to attract “hot money” by offering high interest rates and a strong lira. In his policy view, cheaper money will boost manufacturing and create jobs while inflation eventually stabilizes.

The last intervention was in January 2014, when the central bank sold $ 3.1 billion in witness markets. The move did not stabilize the pound and less than a week later, Turkey was forced to double its reference interest rate to 10% at an emergency meeting.

The country is now facing very different situations. Governor Sahap Kavcioglu is the head of the fourth central bank since Erdogan was sworn in since he extended his executive power in 2018, including being able to dismiss and replace the bank’s governor.

(Adds Lira and Turkish economic background.)

-With the help of Srinivasan Sivabala and Asli Kandemir.