Turkey forex sales hit a record $4.15 billion in January

Foreign currency sales to Turkey’s state economic enterprises – primarily energy importer BOTAS – reached a record $4.15 billion in January. Turkey’s Purchasing Managers’ Index (PMI), a closely watched economic indicator, hit a more than one-year high in February. The economy is mainly dependent on foreign currency to pay for energy imports. It makes the lira vulnerable to shifts in global currency markets. The Central Bank of the Republic of Turkey (CBRT) has taken several steps to support the lira. It includes raising the overnight lending rate from 10.5% to 12.5% in January.

The January data brought forex sales to state enterprises to $9.7 billion in the last three months. It happened after levels of $3.37 billion in the previous two months. The current account deficit widened to $2.5 billion in the January data, from $1.6 billion in October to December. This was the largest gap since March 2012.

Overview of Turkey and its currency policy

The Turkish central bank has been providing foreign currency to state-owned BOTAS since 2014 to help the company meet its growing needs for currency. Reuters reported in November that BOTAS might turn to the bank to meet its increasing forex needs as gas prices and demand have climbed.

The bank’s foreign exchange reserves have declined significantly since the beginning of the year, indicating that it sells forex to BOTAS. The bank has not confirmed that it is providing BOTAS with foreign currency. Last year, the lira weakened 45% to the dollar under an unorthodox policy advocated by President Tayyip Erdogan.

The Turkish lira hit a record low of 18.4 to the dollar in late December before rebounding after President Recep Tayyip Erdogan announced a currency support scheme to bolster lira deposits. The lira had been under pressure due to worries about Erdogan’s economic policies, which had dampened investor confidence. A series of government interventions supported the currency. It includes offering a 100,000 TL incentive to open checking and savings accounts in the lira. The government has also stepped in to help the stock market.

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