Turkey’s net FX reserves lowest in 18 years at $10.68 billion

The Turkish central bank’s net international reserves fell to its lowest level since 2003 at $10.68 billion as of April 2, from $12.79 billion a week earlier, data showed on Thursday.

The exchange rate used by Reuters on Thursday was 8.1707 compared to 7.9409 the previous week.

The reserves plunged last year as state banks sold off an estimated $130 billion to stabilise the lira, which still lost 20 per cent of its value in 2020. Net forex reserves were around $41 billion at the end of 2019.

Analysts say the central bank used swaps with local banks in 2019 and 2020 to prop up its forex reserves. The unorthodox policy spooked foreign investors and raised the risk of a balance of payments crisis, though the bank pledged earlier this year to replenish the buffer.

Data showed the bank’s outstanding swap transactions stood at $41.116 billion by Wednesday. The reserves are in deeply negative territory once the swaps are deducted.

Turkish President Recep Tayyip Erdoğan dismissed central bank governor Naci Ağbal on March 19 over differences in policy, including Ağbal’s decision to review the bank’s sale of foreign currency over the past two years, Reuters said, citing sources with knowledge of the matter.

“Was there discomfort regarding this? Yes, there was. It was one of the influential issues in the presidential palace,” one source said, Reuters reported.

Turkey’s central bank has been engaging in swaps with state-run banks to support the lira as well, Goldman Sachs said in November. The central bank does not publish detailed data on how the reserves are spent.

Opposition parties in Turkey, including the Republican People’s Party (CHP) have called for a full investigation concerning the depletion in reserves and demanded that Erdoğan and former finance minister Berat Albayrak (Erdogan’s son-in-law) account for the losses. The president has rejected the request, saying that the bank’s reserves remain high and have increased during his government’s tenure.