Turkey's state banks sell one billion dollars in reserves in one day despite pledge of gov't to halt sales

On July 3, amidst speculations that Turkey's Central Bank had suspended reserve sales to stabilize the lira, state banks undertook the sale of reserves amounting to one billion dollars within a single day. The economic management stated that the purpose was related to the FX-protected lira deposit scheme.

Duvar English

On the same day that Central Bank Governor Hafize Gaye Erkan was quoted as saying that Turkey's economic administration stopped foreign exchange sales from reserves to stabilize the Turkish lira, Turkey's state banks sold one billion dollars.

Erkan has said at a meeting with bank representatives that a stance protecting the lira would be taken sharply, according to backstage reports from online news outlet Ekonomim. 

On the other hand, Turkey's state-owned banks re-entered the foreign exchange market today as the lira's slide deepened, according to Bloomberg's reporting. The state-owned banks on July 3 sold about one billion dollars by to prevent the dollar/TL from crossing 26.07, anonymous sources told Bloomberg.

A senior official from Turkey’s economic administration stated that the sales were made to meet the foreign currency liquidity needs arising in the market due to the FX-protected lira deposit scheme returns, speaking to Reuters according to another reporting in Ekonomim. 

The official emphasized that the Central Bank's stance of not making sales through public banks continues and stated, "There is no attempt to suppress the exchange rate. The transaction that took place is not an intervention to currency but rather a process to ensure a healthy price formation in the market and provide liquidity to reduces volatility."

Turkey's foreign exchange rates has been extremely volatile particularly since the end of the election process. Dollar/TL breaks a new record every day since then.

President Recep Tayyip Erdogan signaled last week that he was ready to abandon long-standing heavy state interventions to support the currency, choosing Mehmet Şimşek as his new treasury minister. A protocol signed between the Treasury Ministry and the Central Bank in 2018 allows the Treasury to direct state banks to sell foreign currency.

Following the appointment of a new economy management, which expressed its inclination towards restraining dollar sales and allowing the market to determine the value of the currency, state banks ceased their routine interventions. Nonetheless, Erdoğan is unlikely to abandon his long-term unorthodox policies with a quick U-turn.