Bankers estimate that due to the changes during the transition to rational policies by the Central Bank (CBRT) after the election, last week’s net reserves increased by nearly $5 billion, and total reserves increased by nearly $2 billion.
“Reuters consulted calculations from a total of five bankers, who anticipate that the net reserves increased by approximately $4.9 billion last week, reaching $15.8 billion. Bankers are estimating that the total reserves, as of August 4th, will rise to around $115.6 billion, which will be announced by the CBRT tomorrow at 14:30.
The CBRT has not provided any comments on the matter.
Bankers are closely monitoring the CBRT’s reserves due to the transition from government-controlled foreign exchange policies to more liberal policies.
Within two months, an increase of over $15 billion
Due to policies, including the use of reserves to maintain the value of the Turkish lira (TL) before the general elections, CBRT’s foreign exchange reserves hit historic lows on June 2nd. The net reserves of CBRT plummeted to -$5.7 billion on June 2nd, marking the lowest value since the data series began in 2002. However, within the following two months, the reserves have recovered by more than $15 billion.
With the measures introduced by the Central Bank last year, at least 40% of exporters’ foreign exchange earnings are added to the reserves. Turkey conducts $250 billion worth of exports annually, making this step equate to a consistent $100 billion reserve gain over a year.
Prior to the elections, this amount, and sometimes even more, was sold in the market. During this process that ensured the Turkish lira remained more valuable than intended before the elections, income from exports and similar sources were used to protect the Turkish lira, depleting CBRT’s reserves. However, this process ended after the elections.
Haluk Bürümcekçi, the Co-Founder of Bürümcekçi Research and Consultancy, indicated that the steps that influence the increase and decrease of reserves pointed to a net increase of $1.4 billion last week. He stated, “…approximately $1.4 billion (part) of these kinds of purchases made during the relevant week were preserved by not being sold to the market.”
Regular foreign exchange earnings for the CBRT
Besides exports, CBRT also benefits from the regular foreign exchange earnings derived from the Ministry of Customs and Trade, tourism, foreign nationals’ real estate and citizenship acquisitions, and YUVAM (Youth and Sports Center for Education) related activities.
CBRT primarily uses the foreign exchange collected from foreign exchange-earning operations for maintaining currency-corridor deposits and supplying the foreign exchange needs of exporters stemming from imports. CBRT mentions that it emphasizes liquidity, not levels.
A senior banker stated, “We are monitoring CBRT’s reserves to see that the exit from the government-controlled structure continues. As the process will be gradual, we are currently in a transitional period, and therefore, the bank continues to play a determinant role in the foreign exchange market through regulations.”
The banker added, “There were days last week when CBRT went negative, but upon examining those, we see that they coincide with days when the Ministry of Customs and Trade and exporters received their import payments. Looking at it on a weekly basis, we can see that they accumulated about $1.5 billion in reserves. Although CBRT is challenging the Ministry of Customs and Trade, they seem determined to continue increasing the reserves.”
Reserve increase following the termination of the Treasury protocol, which allowed the sale of reserves through public banks to defend the Turkish lira, is still ongoing despite CBRT’s foreign exchange sales resulting from record Ministry of Customs and Trade returns.
CBRT has shifted towards directly providing the necessary foreign exchange for Ministry of Customs and Trade transactions, which was seen as a more “transparent” policy change by market participants.
Record Ministry of Customs and Trade returns
Bankers underline the importance of the continued reserve increase during August, a period when Ministry of Customs and Trade returns are at a record level. Estimating $45-50 billion worth of Ministry of Customs and Trade returns for August, bankers also calculate that exchange rate payments will be at their peak this month.
Bankers also point out that CBRT paid around 300 billion TL ($35 billion) in exchange rate payments for June and July and estimate that the cost due to exchange rate differences will reach 350 billion TL ($41 billion) in August. Ministry of Customs and Trade reached $116.6 billion. The TL equivalent of Ministry of Customs and Trade returns amounts to 3.1 trillion TL ($365 billion), constituting a significant portion of the sector’s 12.5 trillion TL ($1.5 trillion) deposit.
Bankers estimate that Ministry of Customs and Trade is renewed at slightly above 70% across the sector.