The total reserves of the Turkish central bank are estimated to have reached a new historic peak in the last week, five bankers’ calculations showed on Tuesday, maintaining an upward trajectory after it embraced more conventional policymaking after the May elections.
The reserves jumped between $3.5 billion (TL 101.2 billion) and $3.8 billion in the week to Dec. 1 to exceed $140 billion, the calculations project. It would top the earlier record of $136.5 billion in the previous week.
The upward momentum has persisted since June after President Recep Tayyip Erdoğan appointed respected veteran policymaker Mehmet Şimşek as Treasury and Finance Minister and former Wall Street banker Hafize Gaye Erkan as the Central Bank of the Republic of Türkiye (CBRT) governor.
The new administration reversed a yearslong easing cycle and delivered aggressive interest rate hikes to cool demand and stem inflation.
Since June, the central bank embarked on a 3,150 basis-point tightening cycle – including hikes of 500 basis points in the last three months.
Including the latest rise, total reserves have surged $41.5 billion since June. Official data will be released on Thursday.
The five bankers provided Reuters with figures based on central bank balance sheet calculations.
Those calculations showed that net foreign exchange reserves were estimated to have fallen $1 billion last week to $35 billion after surging more than $40 billion since June.
On June 2, just after Erdoğan won reelection, the central bank’s net reserves were minus $5.7 billion, their lowest since data publication began in 2002.
Investors have been signaling a renewed interest in the major emerging market economy following the May vote.
Amundi, Europe’s largest asset manager, told Reuters it had started dipping its toe back into the Turkish lira. At the same time, central bank officials said funds are also beginning to arrive from large U.S.-based institutional investors.
Some large banks, including Deutsche Bank and JPMorgan, recommend that clients reconsider Turkish assets, with the former saying lira-denominated instruments may be one of the best trades among emerging markets in 2024.
Türkiye’s credit default swaps (CDS), which rose to 700 basis points at midyear, were down to 337 on Monday, data from S&P Global Market Intelligence showed.
The Treasury sold two-year benchmark bonds at a compound yield of 40.51% on Monday, up more than 30 points from the single-digit levels they had fallen during the elections due to regulations requiring banks to buy bonds.
Bankers said the latest auctions attracted foreign demand.
The Treasury will sell a four-year TLREF-indexed bond and a 10-year benchmark on Tuesday. It only plans TL 45 billion in domestic borrowing in December, but borrowing will speed up in January and February to total TL 388 billion.
The central bank has scheduled an “Investor Day” event for Jan. 11 in New York, adopting this format for the first time. While similar meetings are regularly organized by the bank, the theme of “Investor Day” will be introduced for the first time.
In early October, Erkan said there was a “multibillion-dollar offer letter on my desk that can directly enter our reserves.”
Before assuming the role of the first female governor of the CBRT, Erkan had worked in senior positions in the banking sector in the U.S., including 10 years at Goldman Sachs.
Meanwhile, S&P Global Ratings last week unexpectedly raised Türkiye’s sovereign credit outlook to positive from stable on subsiding twin deficits and affirmed its rating at “B.”
The move comes outside a strict ratings calendar and S&P said the deviation complies with recent policy adjustments.
The markets are anticipating further outlook and rating upgrades from credit rating agencies.
Source: Daily Sabah
