Turkey’s central bank to stop supporting the lira at the expense of foreign exchange reserves

The head of the Central Bank of Turkey, Hafize Erkan, announced the termination of support for the Turkish lira at the expense of the foreign exchange reserves of the Central Bank. It is reported by the Turkish portal Economim with reference to sources.

After the decision of the Central Bank of Turkey to raise the interest rate, Mrs. Erkan held a meeting with the chairmen of the largest banks, where she stated that the priority of the monetary policy of the new period would be the fight against inflation. “The sale of foreign currency will not be made to suppress the exchange rate,” – reports the words of the head of the Central Bank Economim.

According to the portal, Mrs. Erkan reproached a number of private banks for buying foreign currency after the announcement of the Central Bank’s decision on the rate. She also signaled that foreign exchange interventions aimed at “repressing the exchange rate” would be phased out.

According to Economim, a significant increase in the reserves of the Central Bank of Turkey, which was previously reported by the Minister of Finance and Treasury Mehmet Simsek, confirms the decline in sales of foreign currencies by the Central Bank of Turkey.

Earlier this month, the Turkish Central Bank announced the start of tightening monetary policy. The interest rate was almost doubled, by 6.5 percentage points, to 15%. Experts note that the Central Bank of this country will have to raise rates to 25-30% just to contain the weakening of the lira.

Inflation in Turkey significantly exceeds the level of the increased rate: in 2023 in May, in annual terms, it slowed down to 39.6% from 43.7% in April and 50.5% in March. Monthly inflation growth in May slowed down from 2.4% to 0.04%.

More details – in the material “Kommersant” “The Turkish Central Bank is back to basics”.

Polina Motyzlevskaya