Turkey’s official reserves rose by the most since February, after Russia’s Rosatom injected cash into a Turkish subsidiary.
Turkey’s total gross reserves increased by about $3 billion through last week, with gold accounting for $1.6 billion of the increase and foreign exchange the rest.
Gross foreign exchange reserves stood at $61.1 billion and gold at $40.2 billion, according to data released by the Turkish central bank on Thursday.
Finance and Finance Minister Noureddine Nebati said in a televised interview earlier this week that the stockpile is rising thanks to transfers from another country, without saying which one. His recent policy mix highlights how Turkey is grappling with competing economic priorities.
While the central bank tries to shore up reserves at a time when the trade deficit is widening, it must also continue to support the pound. That means policymakers must maintain unannounced monetary interventions, a drain on foreign exchange reserves that leaves little visibility into the future of reserves despite transfers from abroad, such as that from Russia.
The central bank’s weekly analysis of capital flows shows that the Turkish monetary authority borrowed $2 billion from commercial banks. It also received about $1.8 billion from either other central banks, the International Monetary Fund, or the Bank for International Settlements.
Ankara’s central bank declined to comment when asked about the exact origin of the transfers.
Nebati said on Wednesday night that reserves would continue to increase in the coming weeks with foreign transfers.
Turkish officials told Bloomberg last month that Russia’s Rosatom was in the process of transferring $15 billion to a Turkey-based subsidiary building the $20 billion Akkuyu nuclear plant on the Mediterranean coast.
The Russian company disputed the Turkish officials’ tally, saying “current transactions are significantly lower.”
Any Turkish bank that receives the cash could lend those dollars to the central bank through swaps or part of the monetary authority under the so-called reserve mechanism.
The central bank has regularly borrowed foreign currency from commercial lenders through FX-pound swaps since 2019. The total amount it received through the facility reached $59 billion, according to the central bank’s monthly data, last published in June. These swaps allow commercial lenders to park some of the newly inflowing funds with the monetary authority, which in return lends pounds to banks.
The central bank has entered into a series of currency swap agreements with countries including China, Qatar, South Korea and the United Arab Emirates since 2012 to shore up its reserves.
Turkey’s foreign reserves have come under pressure since it began behind-the-scenes interventions to support the lira under former finance minister Berat Albayrak in 2019. President Recep Tayyip Erdogan said early last year that those interventions amounted to about $165 billion. , defending the strategy as key to financing the current account deficit and meeting Turkey’s obligations in a period of capital outflows.
Bloomberg Economics estimates that the country has intervened by $66 billion in the foreign exchange market so far this year to support the pound.
Still, the pound has lost around a quarter of its value in 2022, bringing its total losses over the past three years to 70%.