Recently, the political turmoil following the detention of Istanbul Mayor Ekrem İmamoğlu has led to increased volatility in Turkey’s markets. The Turkish Lira has quickly depreciated. In response, the Central Bank of the Republic of Turkey (CBRT) intervened in the foreign exchange market to halt the Lira’s decline, selling approximately 25-26 billion dollars in foreign currency (as estimated by experts).
Interventions and Foreign Currency Sales:
According to Financial Times, on the first day of intervention, the CBRT sold approximately 12 billion dollars. Over the next two days, an additional 14 billion dollars was sold. Therefore, in just three days, the total foreign currency sales reached approximately 26 billion dollars. Experts are questioning how sustainable such interventions are, especially considering the CBRT’s foreign currency reserves.
Expert Opinions:
- Prof. Dr. Hakan Kara: Approximately 23 billion dollars were sold in the past three days, with the bulk of the sales occurring on Wednesday.
- Prof. Dr. Evren Bolgün: While Turkey managed to accumulate 100 billion dollars in reserves over a year by attracting portfolio investments from foreign investors, 25 billion dollars were spent in just three days.
- Prof. Dr. Kamil Yılmaz: CBRT has sufficient tools for short-term interventions but in the long term, these tools could deplete the reserves. Continuous currency sales could drain the reserves.
- Prof. Dr. Emre Alkin: The “high interest-low exchange rate” policy had led to an increase in foreign currency borrowing by the private sector, which in turn increased demand for foreign currency. Without a stable environment, exchange rate volatility will continue.
Market Reactions and Risks:
While the CBRT’s foreign currency sales may have temporarily stabilized the market, experts warn that, in the long run, the bank’s foreign currency reserves could quickly deplete. Moreover, the lack of a fully restored sense of confidence in the market means that the Turkish Lira could continue to depreciate. A Turkish banker quoted by Financial Times mentioned that “control had been lost” in the market, further eroding confidence.
Conclusion:
The CBRT’s foreign currency interventions provide a short-term solution, but there are significant risks associated with depleting foreign reserves and the lack of a stable and trustworthy economic environment. Economic experts suggest that while the CBRT’s actions may help stabilize the market temporarily, such measures are unsustainable in the long run. Without restoring confidence, the volatility in the exchange rate will likely persist.
