Turkish cenbank’s net FX reserves drop to $12.62 bln

The Turkish central bank’s net international reserves fell $1.26 billion to $12.62 billion in the week to Aug. 26, central bank data showed on Thursday.

The exchange rate used by Reuters on Thursday was 18.1466. In early August, the net forex reserves touched $15.68 billion, their highest level since late April but have fallen sharply in the last two weeks.

Forex reserves have dropped sharply in recent years, most recently due to the billions of dollars the bank sold in market interventions in the wake of a currency crisis in December.

The lira ended the year down 44 per cent against the dollar in 2021, a slump which helped send inflation soaring to 79.60 per cent in July, the highest under President Tayyip Erdogan’s rule.

The currency is down more than 27 per cent against the greenback this year.

The central bank has met the market’s need for more than $30 billion of forex since December through its reserves, in addition to direct interventions in the forex market in 2019-2020, when it sold $128 billion to support the lira.

In past years, the bank used swaps with local banks to backstop interventions, an unorthodox policy that spooked foreign investors and local savers.

Data showed the bank’s outstanding swap transactions stood at $42.33 billion as of Wednesday. The reserves are in negative territory once the swaps are deducted.

It should be noted that the figures are released every week on the central bank balance sheet as per a letter of intent with the International Monetary Fund dated 18 January 2002. The figures are released in Turkish liras and are converted by Reuters to US dollars using the central bank’s official exchange rate from the previous work day.

Meanwhile, activity in the Turkish manufacturing sector shrank for the sixth month running in August as demand contracted sharply, leading to a slowdown in output, a business survey showed on Thursday.

Turkey’s Purchasing Managers’ Index (PMI) for manufacturing stood at 47.4 in August, ticking up from 46.9 in July, the Istanbul Chamber of Industry and S&P Global said, but staying below the 50-point line that divides growth from contraction.

New orders slowed down at the sharpest rate since May 2020 when coronavirus measures were in place around the world, the panel showed, as contributors cited a lack of demand, price rises and weakness in the global economy as reasons for the easing.

Manufacturing output slowed amid challenging market conditions and high prices, although the rate of moderation eased slightly compared with the previous month.

Higher costs for raw materials, transportation and energy, a rise in Turkey’s minimum wage and currency weakness contributed to increases in input and output prices although the rate of inflation eased in both, the panel said.

Despite weakening demand and the slowdown in orders, manufacturers hired more staff, with the rate of job creation picking up to a three-month high, it also said.

“While output moderated to a lesser extent in August, the trend in new orders was more concerning as new business slowed… Market conditions are clearly challenging at present,” said Andrew Harker, economics director at S&P Global Market Intelligence.

“One area of respite for firms is that their cost pressures continued to fade in August. The slowest rise in input prices in over two-and-a-half years fed through to a softer rise in charges. Less pronounced price rises may help to limit the slowdowns in demand over the months ahead.”