Turkish lira crowns historic week with big boost from Erdogan government

  • Data shows Turks failed to sell dollars on Monday and Tuesday
  • State interventions saw $ 8 billion this week

ANKARA, Dec.24 (Reuters) – The Turkish lira closed its strongest week on Friday, reaching more than 50% on the backing of billions of dollars in state-backed market interventions and the promise that the government would cover exchange losses on certain deposits.

The Turks did not sell dollars on Monday and Tuesday, according to official data suggesting they played little part in the biggest gains in the market. State interventions, meanwhile, cost the central bank more than $ 8 billion this week, according to traders’ calculations.

The currency has gained for five consecutive days and reached mid-November levels; it stood at 10.7 against the dollar at 1919 GMT.

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The lira had plunged to an all-time low of 18.4 per dollar on Monday, after falling for several months due to unorthodox interest rate cuts and fears of an inflationary spiral.

But on Monday evening, President Tayyip Erdogan unveiled a plan in which the Treasury and the central bank would repay losses on deposits converted into lira against foreign currencies, triggering the largest intraday rally in the currency on record. Read more

In an interview with broadcaster AHaber, Erdogan said the Turks have shown confidence in the local currency and lira deposits have increased by 23.8 billion lira after the announcement of the anti-dollarization plan. [nL8N2T91V1] Read more

But data from banking watchdog BDDK showed that after a strong build-up of dollars last week, individual Turkish depositors held $ 163.7 billion in hard currency on Tuesday – virtually unchanged from Monday and Friday, when the total was $ 163.8 billion.

Instead, the pound was given a big boost by what traders and economists called dollar stolen sales by state banks, backed by the central bank.

In the first three days of this week alone, the central bank’s net foreign exchange reserves fell by $ 8.5 billion, according to calculations by three bankers who spoke to Reuters. The drop totaled nearly $ 18 billion in December, they said.

“We suspect that positioning and sneaking will continue to dominate price action,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. “Even if the pound stabilizes, there are still strong inflationary impulses in the economy that will continue to erode the value of everything in local currency.”

After Reuters announced progress in talks over possible currency exchange lines with Azerbaijan and the United Arab Emirates, Turkey’s central bank governor Sahap Kavcioglu said the bank could sign two currency exchange agreements within two weeks. Read more

“USE ALL INSTRUMENTS”

Citing four sources close to the operations, including a senior Turkish official, Reuters reported on Thursday that state banks had massively sold dollars earlier this week in the wake of Erdogan’s announcement. Read more

State-owned banks have not commented on the matter.

The central bank, which was not immediately available for comment, had announced interventions to sell dollars in the market earlier this month, but not this week.

Finance Minister Nureddin Nebati, discussing the interventions on broadcaster NTV on Thursday, said Turkey “was using all the instruments at its disposal in a positive way.”

As of December 17, the central bank’s net foreign exchange reserves fell to $ 12.2 billion from $ 21.2 billion a week earlier, to levels last reached in May, reflecting the interventions. Read more

Hakan Kara, former chief economist at Turkey’s central bank, said on Twitter that the bank’s currency sales stood at $ 17-20 billion this month, of which $ 3 billion on Wednesday alone, although that he said it was not clear how they were used.

“State banks have provided significant support to the forex balance, but it is not just state banks that sell dollars,” said one bank trader who spoke on condition of anonymity.

In 2019-2020, the central bank supported, via swaps, the sale of some $ 128 billion via state banks to stabilize the lira, depleting Turkey’s foreign exchange reserves and drawing strong criticism from the lira. political opposition.

Under pressure from Erdogan, the central bank has cut its key rates by 500 basis points to 14% since September despite a jump above 21% in inflation. Price increases are expected to exceed 30% next year, in part due to the depreciation of the pound.

Reflecting these concerns, Turkish Airlines will increase the wages of its employees by the inflation rate plus 65% for 2022, according to an agreement with its union. Read more

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Reporting by Nevzat Devranoglu and Jonathan Spicer; Editing by Jane Merriman, Catherine Evans and Leslie Adler

Our Standards: Thomson Reuters Trust Principles.

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