Central bank: Ensuring stronger reserves policy key priority

Governor of the Central Bank of the Republic of Turkey (CBRT) Murat Çetinkaya confirmed Monday that the bank's main policy is to keep reserves strong and make them stronger, in the latest official response to a steep lira sell-off Friday that marked the greatest drop in the currency's value since August. In a statement to Anadolu Agency (AA), the governor said: "I would like to emphasize that our main policy is to keep our reserves strong and further reinforce them. Last year, there was some decline in reserves following the financial market volatilities. However, we have since witnessed an upward trend."

He drew attention to the occasional fluctuations in the gross reserves and highlighted that they are not an extraordinary case. "For sounder analyses, reserve developments should be monitored in light of medium-term trends," he added.

In a separate statement released yesterday, the central bank underscored that it will use all monetary policy and liquidity management instruments to maintain price stability if deemed necessary, as it closely monitors fluctuations and unhealthy price formations after the lira plunged Friday.

"The central bank is decisive about its policy towards reinforcing its reserves. Accordingly, an uptrend was observed in the reserves following the financial market volatility observed last year. The recent fluctuations in gross reserves are driven by ordinary transactions and periodic factors, and there are no unforeseen incidences," the bank explained.

The central bank also announced yesterday that it increased the total swap sale limit to 20 percent from 10 percent for swap transactions which have not matured. The bank also suspended the one-week repo auctions to further tighten the monetary policy after the market volatility Friday. The report interest rate, the main financing tool of the bank, is currently set at 24 percent. The markets might be financed through either overnight funding window at 25.5 percent or late liquidity window (LLP), if necessary, for which the interest rate was set at 27 percent in a September meeting and has not changed since.

LIra rebounds from losses

The Turkish lira recouped its losses yesterday following a major tumble on Friday as the central bank raised borrowing costs and signaled further steps to tighten the money supply with a view to augmenting foreign currency reserves. It strengthened more than 3.4 percent earlier yesterday and was trading at 5.57 per dollar.

The reaction of the central bank follows high volatility in Turkish foreign currency exchange (FX) markets Friday, which led to nearly 5.5 percent loss on the lira. The central bank's reserves declined $6.3 billion in the first two weeks of the March. The bank explained Friday that the decline is not an extraordinary development and mostly triggered by payments of foreign debts and sales of hard currency to state companies importing energy resources.

The slide in the currency accelerated after the U.S.-based investment bank JPMorgan Chase recommended investors go short on the lira, targeting a move to 5.90 against the U.S. dollar, citing a recent drop in Turkey's net foreign exchange (forex) reserves for the move. Turkey's Banking Regulation and Supervision Agency (BDDK) and Capital Markets Board (CBM) launched an investigation into JPMorgan and other banks involved.

In a speech on Sunday, President Recep Tayyip Erdoğan also confirmed that Turkey would continue to investigate those who engage in speculative trading to hurt the Turkish lira.