Turkey’s missing billions signal backdoor moves to prop up the lira
Net foreign assets fell $5.1bn on Tuesday according to calculations using monetary authority’s balance sheet
Turkish net foreign assets fell nearly $6bn early this week as President Recep Tayyip Erdogan unveiled plans to bolster the lira, suggesting Turkey made unannounced interventions in foreign-exchange markets.
While the government has said it did not intervene, the fall of $5.9bn probably signals a backdoor intervention similar to operations carried out over two years from October 2018, when state lenders sold dollars to support the local currency.
Net foreign assets fell $5.1bn on Tuesday compared with $817m on Friday, according to calculations by Bloomberg using the monetary authority’s daily analytical balance sheet.
The UK’s Financial Times reported earlier on the change in Turkey’s net foreign assets.
Erdogan rolled out a series of extraordinary measures on Monday to support the plunging lira, which at that point had shed more than 50% of its value against the dollar this year. The currency slump was fuelled by central bank rates cuts demanded by the president, but authorities acted as the lira’s losses threatened to accelerate inflation already above 20% and eroding support for the ruling party.
The lira appreciated as much as 25% on Monday after Erdogan spoke, its biggest daily jump since 1983, and has now gained more than 40% against the dollar this week.
The lira’s move on Monday was supported by state banks, according to four sources who asked not to be named. At least one private lender was involved, said one source familiar with the transactions. The sales continued on Tuesday, they said.
At the centre of Erdogan’s plan is a new instrument intended to suppress retail investor demand for dollars. If the lira’s fall against hard currencies exceed banks’ interest rates, the government will pay holders of lira deposits the differential.
Net reserves fell to $12.2bn by Friday, showing the effect of last week’s direct sales announced by the central bank. The $9bn drop was the biggest weekly drop in data since at least 2002.
Global banks including Goldman Sachs predict more than $100bn of central bank reserves were spent to avert a disorderly depreciation in the lira last year alone, when the currency came under pressure after a series of large rate cuts to support the pandemic-hit economy.
Earlier in 2021, Erdogan said authorities used $165bn of central bank foreign-currency reserves to weather developments in 2019 and 2020, and may use them “again when needed”.
Bloomberg News. More stories like this are available on bloomberg.com
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