Surge in foreign capital spurs Turkish lira – Turkiye Newspaper

The dollar began trading at ₺32.28, with exchange office dealings fluctuating between ₺32.00 and ₺32.15 Thursday. The influx of foreign capital alongside a domestic trend of transitioning from foreign currencies has propelled the net reserves of the Central Bank of the Republic of Türkiye (CBRT), excluding swaps, to hover just shy of the negative $2 billion mark.

Following the local elections, a tighter monetary policy and a rapid increase in CBRT reserves have been noteworthy. The current calculations show that net reserves, excluding swaps, have recovered to below the negative $2 billion mark.

Two months ago, the reserves, including Treasury-held foreign currencies, were close to the negative $70 billion mark. The net reserves are expected to turn positive in a few days.

Since April 1, approximately $16 billion of “carry trade” capital, attracted by high Turkish lira yields, has entered the market.

A small part of the recovery is also because of rising gold prices.

Will swap channels reopen?

The main narrative in recent times has been the inflow of foreign capital, with concerns over its short-term nature and the need for more sustainable, long-term investments frequently discussed in the market. Attention is now on swap channels foreign investors used to hedge their Turkish lira investments.

Tufan Deriner, Founding Partner of Istanbul Portfolio, commented: “Gradual reopening these channels is advisable. A sudden opening could increase volatility in exchange rates.”

Dollar rates on May 30

The inflow of foreign capital and significant interest in the Turkish lira continues to influence domestic currency prices. On May 30, the dollar started the day at ₺32.28, with exchange office transactions between ₺32.00 and ₺32.15.

The euro was trading at ₺31.70 in the morning.

A significant portion of the increase in CBRT reserves is also attributed to withdrawals from Foreign Exchange Deposit Accounts and Currency Protected Deposit Accounts, with those funds converting to Turkish lira.

Short-term foreign capital dominates

Currently, 60-70% of the foreign capital entering the country is a concise term, Deriner noted.

“They typically stay in the daily interest rate market. It wouldn’t be wrong to say this is a quick-to-exit type of capital. We need to shift this capital to long-term investments. For this, it is important that inflation decreases and structural reforms continue. As things normalize, swap channels can be reopened,” he explained.

Source: Newsroom