Turkey makes major effort to shore up lira, reserves

Earlier this month, President Tayyip Erdogan said Turkey had agreed with China to increase an existing currency swap facility to $6 billion from $2.4 billion. Last year, Turkey also tripled its currency-swap agreement with Qatar to $15 billion.

Kavcioglu did not specify which countries Turkey was in talks with, but said during a meeting with managers of banks in the Turkish Banks Association (TBB) that it was at “a very good place” with two central banks, the participants told Reuters.

Turkey’s foreign reserves plunged by 75 per cent last year, raising concerns about a possible balance of payments crisis, which the government has dismissed.

Reserves were depleted by a 2019-2020 policy of state bank sales of some $128 billion support the lira currency. Excluding swaps with state banks, the central bank’s FX reserves, which have risen in recent weeks, are deeply negative, official data show.

Kavcioglu said the central bank was committed to its goal of strengthening its reserves, the participants said.

A year ago, Turkey appealed to foreign allies for new swap funding but secured little. Last June, the central bank said it had used its funding facility for Chinese yuan for the first time under the prior swap agreement with the People’s Bank of China.

Interest rate hikes starting in September briefly eased the economic pressure, though the ailing lira has been hovering around record lows in recent weeks.

Kavcioglu told the bank managers on Tuesday that the central would maintain a tight monetary stance and take the policy steps needed to protect the ailing lira currency, the two participants said. He said the bank may make changes to policies on required reserves in order to boost the lira.

In a statement, the TBB said Kavcioglu and the bank managers had exchanged views regarding the second half of the year in a “productive and useful” meeting.

REUTERS