UPDATE 1-Turkey total reserves up to record $140 billion -bankers
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Total reserves surge $41.5 billion since June
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Capital inflows accelerated, calculations show
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U-turn towards policy orthodoxy after May elections
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By Nevzat Devranoglu
ANKARA, Dec 5 (Reuters) – The Turkish Central Bank’s total reserves have jumped to a record level exceeding $140 billion, five bankers’ calculations showed on Tuesday, sustaining an uptrend after it adopted more orthodox policies following May elections.
The rising reserves, alongside 3,150 basis points in interest rate hikes since June, have marked a departure from years of unorthodox and at times erratic policymaking – and some foreign investors are taking note.
Including the latest rise of $3.5-3.8 billion in the week to Dec. 1, total reserves have surged $41.5 billion since June, when President Tayyip Erdogan appointed former Wall Street banker Hafize Gaye Erkan as central bank governor.
Ankara has also abandoned a practice of using reserves to directly support the lira currency, and sought to unwind heavy-handed financial market regulations to bolster the policy U-turn.
The central bank did not comment on the reserves figures. 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 FX reserves were estimated to have fallen $1 billion last week to $35 billion, after having surged more than $40 billion since June.
INVESTOR EXODUS
On June 2, just after Erdogan won re-election, the central bank’s net reserves were minus $5.7 billion, their lowest since data publication began in 2002.
Years of rate cuts, soaring inflation and depleted FX reserves sparked an exodus of foreign investors from the major emerging market economy. But the recent U-turn has brought renewed interest.
Amundi, Europe’s largest asset manager, told Reuters it had started dipping its toe back into the Turkish lira, while central bank officials said funds are also beginning to arrive from large U.S.-based institutional investors.
Hakan Kara, a former central bank chief economist who is at Bilkent University, said the bank’s apparent net purchase of $5.6 billion in the last two weeks suggests that “capital inflows accelerated…probably due to foreign swap entries.”
Still, foreigners hold less than 1% of lira denominated bonds, down from 10% in 2019 and 20% in 2015, official data shows. Investors worry that Erdogan could again fire his central bank chief and Treasury minister and return to unorthodox policies.
Yet some large banks, including Deutsche Bank and JPMorgan, are recommending that clients reconsider Turkish assets, with the former saying lira-denominated instruments may be one of the best trades among emerging markets in 2024.
Turkey’s credit default swaps (CDS), which rose to 700 basis points at mid year, 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 to which they had fallen at the time of 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 10-year benchmark on Tuesday. It only plans 45 billion lira in domestic borrowing in December, but borrowing will speed up in January and February to total 388 billion lira ($13.3 billion). (Reporting by Nevzat Devranoglu; Editing by Daren Butler and Sharon Singleton)
