Turkey’s state banks aggressively sold dollars this week, boosting a rally in the lira after President Tayyip Erdogan announced a deposit-protection scheme meant to stem a currency crisis, according to four sources familiar with the moves.
The selling coincided with a drop in the central bank’s foreign reserves, according to official data and a trader who told Reuters they declined by nearly $6 billion on Monday and Tuesday alone.
A second source, a chief bank advisor, said state bank interventions on Monday and Tuesday totalled $3 billion. The other two sources, including a senior Turkish official, said the interventions were intense and extended later in the week.
The three big state banks – Ziraat Bank, Vakif Bank and Halk Bank – did not immediately comment on possible interventions. The central bank was not immediately available to comment.
In 2019-2020, the central bank backed, via swaps, the sale of some $128 billion via state banks to stabilize the lira, depleting Turkey’s foreign reserves. Earlier this year, the sales emerged as a focus of what the political opposition calls government mismanagement.
To address the latest market turmoil, the central bank has announced five direct market interventions this month that bankers say totalled between $6-$10 billion. It has made no intervention notices this week.
Official data shows that the bank’s net foreign reserves dropped to $12 billion last week, from $21 billion a week earlier, as the interventions weighed.
The government says the deposit-protection scheme encourages Turks to hold lira rather than hard currencies, which account for more than half of local savings.
Analysts have warned that if the lira’s rally fizzles and reverses, the scheme could further stoke inflation, add to public debt, and eat into foreign reserves.
Faik Oztrak, spokesperson for the main political opposition CHP, said on Twitter the lira shot up “apparently due to selling foreign currency through the back door again,” citing a $6-billion drop in net reserves on Monday and Tuesday.
Ziraat Chief Executive Alpaslan Cakar, who also heads the Turkish Banks Association, said the overall dollar-selling pressure amounted to about $1 billion in markets on Monday after Erdogan’s announcement.
Reuters