Central Bank sold 5.8 billion dollars in 1 week... Reserves melted: Why was the foreign currency sold?

The TCMB intervened in the market last week to control the record levels in the dollar/TL exchange rate. According to calculations by QNB Finansbank economists, the Central Bank sold 5.8 billion dollars in foreign currency. This intervention caused a decrease of 2 billion 616 million dollars in gross foreign exchange reserves.

As of February 2, gross foreign exchange reserves fell to 86 billion 538 million dollars, while gold reserves rose by 898 million dollars to 48 billion 905 million dollars. Total reserves decreased by 1 billion 717 million dollars to 135 billion 444 million dollars. The total decline in reserves over the last six weeks has exceeded 10 billion dollars.

Net international reserves, including swap transactions, decreased by 2 billion 638 million dollars compared to the previous week, falling to 28 billion 40 million dollars. This decline was evaluated as a result of the Central Bank's active interventions in the foreign exchange market.

Former TCMB Chief Economist Hakan Kara listed the possible reasons for the foreign currency sale as follows:

1) The Central Bank increasing its forecast

2) Profit-taking in fixed-income TL assets due to the understanding that the decline in inflation will be limited

3) Local and global developments that reduce risk appetite

4) Acceleration of the exit from KKM (FX-protected deposit accounts)

5) Seasonal external deficit

THE IMPACT OF FOREIGN INVESTORS

In the week of February 2, non-residents made net stock purchases of 132.8 million dollars. During the same period, foreign investors sold 14.5 million dollars in Government Domestic Debt Securities (DİBS) and 400 thousand dollars in Corporate Debt Securities (ŞBS). Since the beginning of the year, the net stock purchases by foreigners have reached 198.7 million dollars, and DİBS purchases have reached 273 million dollars.

Total deposits in the banking sector decreased by 207 billion 97 million liras in the week of February 2, falling to 15 trillion 279 billion 870 million liras. TL-denominated deposits fell by 2.2 percent to 8 trillion 664 billion 556 million liras, while foreign currency-denominated deposits fell by 0.8 percent to 5 trillion 995 billion 97 million liras.

While the total amount of foreign currency deposits was 209 billion 199 million dollars, 176 billion 290 million dollars of this amount was concentrated in accounts belonging to domestic residents. Excluding the parity effect, a decrease of 2 billion 382 million dollars was recorded in the foreign currency deposits of domestic residents.

INCREASE IN LOAN VOLUME

Consumer loans at deposit banks increased by 0.4 percent last week to 1 trillion 446 billion 410 million liras. Installment commercial loans increased by 0.5 percent to 1 trillion 320 billion 418 million liras, and credit card balances increased by 3.7 percent to 1 trillion 647 billion 4 million liras.

Of the consumer loans, 394 billion 414 million liras consisted of housing loans, 71 billion 378 million liras of vehicle loans, and 980 billion 617 million liras of other loans. The total loan volume of the banking sector reached 11 trillion 492 billion 974 million liras, with an increase of 103 billion 282 million liras. The total loan volume showed an increase of 51.6 percent compared to the same period last year.

Experts stated that if the decrease in reserves continues, the pressure on the exchange rate may increase. On the other hand, the increase in gold reserves showed that the Central Bank continues its portfolio diversification.

Deposit and loan data in the banking sector indicated that economic activity remains vibrant. However, the decline in foreign currency deposits revealed that demand for foreign currency continues.

News Source: 12punto