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Turkish lira introduces historic week with big support from Erdogan government

Turkish lira banknotes are seen in this illustration
FILE PHOTO: Turkish lira banknotes are seen in this illustration taken in Istanbul, Turkey November 23, 2021. REUTERS / Murad Sezer / Illustration

December 24, 2021

By Nevzat Devranoglu and Jonathan Spicer

ANKARA (Reuters) – The Turkish lira hit its strongest weekly record on Friday, surging 44% on the back of billions of dollars in state-backed market intervention and profits. promises that the government will cover exchange rate losses on certain deposits.

The currency plunged on Monday to an all-time low of 18.4 against the dollar, after a month of slide caused by unorthodox rate cuts and fears of an inflationary spiral.

But late on Monday, President Tayyip Erdogan unveiled a plan in which the Treasury and central bank would repay losses on lira-denominated deposits, sparking protests. on the biggest day ever.

The anti-dollarization plan has generated four consecutive days of gains as the Turks converted some $900 million worth of hard coins into lira, according to Finance Minister Nureddin Nebati, Finance Minister Nureddin Nebati said. .

The coin cooled by 4% on Friday to 11.85 against the dollar at 0918 GMT.

The lira got a big boost from what traders and economists call backdoor dollar sales by central bank-backed state banks.

In the first three days of the 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. They said a total drop of nearly $18 billion in December.

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 reached in May as a result of intervention measures.

‘USE ALL TOOLS’

Citing four sources familiar with the operations, including a senior Turkish official, Reuters reported on Thursday that state banks sold a lot of dollars earlier this week following the announcement of Erdogan.

State banks have not commented on the matter.

The central bank, which was not immediately available for comment, announced interventions in the dollar selling market earlier this month but not this week.

Nebati, discussing the interventions on broadcaster NTV on Thursday, said Turkey was “actively using all the tools at its disposal”.

Hakan Kara, a former chief economist at Turkey’s central bank, said on Twitter that the bank’s foreign exchange sales amounted to $17-20 billion this month, including $3 billion on Wednesday alone. Tu, although he said it was not clear how they were used specifically.

“State banks have been giving substantial support to foreign exchange balances but it is not just state banks that are selling dollars,” said a bank trader who asked to remain anonymous.

During 2019-2020, the central bank supported, through swaps, the sale of about $128 billion through state banks to stabilize the lira, depleting Turkey’s foreign exchange reserves. States and was harshly criticized by the political opposition.

Under pressure from Erdogan, the central bank has cut its policy rate by 500 basis points to 14% since September even though inflation has spiked above 21%. The price increase is expected to surpass 30% next year in part due to the depreciating lira.

Reflecting these concerns, Turkish Airlines will increase employee wages at the rate of inflation by 65% ​​for 2022, according to an agreement with the airline’s labor union.

(Reported by Nevzat Devranoglu and Jonathan Spicer. Editing by Jane Merriman)

https://www.oann.com/turkish-lira-caps-historic-week-with-big-lift-from-erdogan-government/?utm_source=rss&utm_medium=rss&utm_campaign=turkish-lira-caps-historic-week-with-big-lift-from-erdogan-government Turkish lira introduces historic week with big support from Erdogan government

Bobby Allyn

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