x Abu Dhabi, UAEFriday 28 July 2017

Turkish reserves reach the highest on record

What's Up: Foreign-exchange reserves at Turkey's central bank surpassed US$100 billion, the highest on record, helping policymakers to limit swings in the currency.

The reserves at the Turkish central bank reached $100.17 billion last month, the highest since at least 1988. Kerem Uzel / Bloomberg News
The reserves at the Turkish central bank reached $100.17 billion last month, the highest since at least 1988. Kerem Uzel / Bloomberg News

Foreign-exchange reserves at Turkey's central bank surpassed US$100 billion, the highest on record, helping policymakers to limit swings in the currency and serving to underpin the world's biggest bond rally.

The reserves at the central bank reached $100.17 billion last month, the highest since at least 1988, according to data compiled by Bloomberg, up from $75.3bn in January.

Turkish reserves compare with $260bn for India and $10.5bn for Egypt. Lira volatility fell to 6 per centlast week, the lowest among emerging markets in Europe, helping bond yields to fall 527 basis points this year in the biggest drop globally.

Fitch Ratings cited the $24bn increase in foreign-exchange and gold reserves when it raised Turkey to investment grade last month.

The central bank governor, Erdem Basci, spent $16.1bn of the bank's reserves in direct dollar sales and daily foreign-exchange buying between August last year and January to defend the lira as the current-account deficit jumped to a record high. The currency has rebounded 6 per cent this year.

Mr Basci introduced an interest-rate corridor last year, which lets him adjust borrowing costs daily, a policy that has allowed him to cut bank borrowing costs and reduce inflation.

He also increased the proportion of required reserves that lenders can keep in foreign exchange instead of lira to 60 per cent from 55 per cent and the part that can be kept in gold to 30 per cent from 25 per cent in August, saying the changes may add as much as $7.3bn to the bank's foreign-exchange reserves.

The central bank said on Tuesday that it had raised the reserve option coefficient for the reserves that can be held in gold by 0.1 percentage point, which was expected to add $850 million to the reserves.

The bank lowered its benchmark one-week repurchase rate on Tuesday for the first time in 16 months to a record low of 5.5 per cent from 5.75 per cent.

* Bloomberg News