Turkish central bank reserves hit 9-year high

Total reserves increased, reaches $134.5 billion
Turkish central bank reserves hit 9-year high
Reserves are now $36 billion higher than the $98.5 billion level at the end of May

The reserves of the Central Bank of the Republic of Türkiye (CBRT) rose by $6 billion last week to reach $134.5 billion. That is the highest level recorded since September 2014. The upward trend followed the bank’s adoption of a more conventional monetary policy since elections in May this year. The figure was based on calculations provided by four banks as reported by local and international media. Turkish central bank did not comment, but official figures are expected to be released on Thursday.

Monetary tightening cycle

Last June, Turkish President Recep Tayyip Erdoğan appointed former Wall Street banker Hafiza Erkan as governor of the central bank. Since then, the bank has embarked on a monetary tightening cycle that has raised interest rates by 2,650 basis points. That includes a 500-basis point increase in each of the last two months.

The reserves are now $36 billion higher than the $98.5 billion level at the end of May following the elections.

The central bank did not comment on the reserve figures. However, the official data will be released on Thursday.

Türkiye borrows $2.5 billion

The rise came after Türkiye borrowed $2.5 billion in a 5-year sukuks with a much lower yield of 8.5 percent this month. This marks its first international bond issue since the elections. These funds entered the treasury accounts on November 14.

Meanwhile, the lira continued to decline, reaching 28.8 to the dollar. That is 35 percent lower than it was at the end of last year. Thus, the lira hit a record low of 28.9 to the dollar last week.

Increased interest rates

Notably, economists expected that the Central Bank of Türkiye would continue to raise interest rates during the current year, reaching 40 percent.

Economists at the Dutch ING Group said that the Turkish Central Bank will reach a 40 percent interest rate by the end of this year in two stages. The bank will raise the interest rate by 250 basis points in its current November meeting, to reach 37.5 percent. Moreover, it will adopt a similar increase in its last meeting next December.

Read: UAE investments in Türkiye surpass AED20.6 bn as of August

Inflation indicators

Economists at ING stated in a report conveyed by Turkish media that “developments in inflation data have given signs of a slowdown in interest rates.” They pointed out that the inflation data announced last October showed an improvement in core inflation.

The annual inflation rate in Türkiye recorded a slight decline last October, for the first time in 3 months. That is a result of the diminishing repercussions of the sharp decline in the lira’s exchange rate during the summer. The decline is also due to tax increases and political stability following the parliamentary and presidential elections last May.

Moreover, official data from the Turkish Statistical Institute showed consumer price inflation fell slightly to 61.36 percent annually in October. Meanwhile, it recorded a decline of 3.43 percent on a monthly basis.

In the fourth quarterly inflation report for 2023, announced by its president, Hafize Gaye Erkan, on November 2, the Turkish Central Bank expected that the inflation trend would show a decline starting last October.

“We estimate that there will be temporary increases in November, January, and May due to factors outside the influence of monetary policy,” Erkan said.

The Turkish Central Bank revised its inflation expectations at the end of the year upward from 58 to 65 percent.

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