Türkiye's economy chief on Thursday praised the positive trajectory in the country’s foreign exchange reserves, which he says will maintain pace with a decrease in external financing needs and accelerated foreign inflows.
Treasury and Finance Minister Mehmet Şimşek’s remarks came after official data showed Thursday that the central bank's net international reserves rose by a record of some $7 billion to nearly $21.1 billion last week.
In a separate positive sign, Türkiye's five-year credit default swaps (CDS) on Thursday dipped to the lowest level in over four years.
The Central Bank of the Republic of Türkiye's (CBRT) net reserves, excluding swaps, hit a record low of minus $65.5 billion on March 29, just before the local elections. They recovered to minus $38.8 billion last week, the data showed.
That marks an improvement of around $27 billion since the beginning of April, Şimşek wrote on social media platform X, formerly known as Twitter.
"Our (medium-term) program is working; with rebalancing, the current account deficit is decreasing, macro financial stability is strengthening, and confidence is increasing," the minister noted.
“With decreasing external funding needs and accelerated external resource inflows, the positive trend in reserves will continue."
The latest data shows the central bank sustains a strong turnaround in its financial buffer as it steps up efforts to amass foreign currency.
It bought nearly $11 billion in foreign exchange last week, including $4 billion on Tuesday alone, also marking a record high level. Bankers anticipate that the increase in reserves will continue strongly this week as well.
Total reserves rose $2.8 billion to $126.9 billion in the week ending May 3, the data showed.
CBRT Governor Fatih Karahan on Thursday said there has been an additional $18 billion "extra improvement" in net reserves, excluding swaps, over the past two weeks.
Karahan mentioned that while they desire an increase in reserves, they do not have specific targets for a certain level.
"We aim to adjust our reserves in a manner that does not hinder the improvement in inflation," said the governor. "During periods of high demand for the Turkish lira, it provides us with an opportunity to accumulate reserves."
Up until the election, net reserves had fallen nearly $25 billion this year. They began to turn around after the central bank's surprise 500 basis-point interest rate hike in March.
Bankers highlight a recent acceleration in foreign interest and say if this process is sustained, authorities may focus later this year on easing restrictions on London swap limits.
Türkiye's five-year CDS – a form of insurance for bondholders – fell to 276 basis points on Thursday, its lowest level since February 2020.
Analysts say reports that Türkiye was taking steps to ease restrictions on offshore currency swaps drove the decrease.
They also highlighted efforts by the country's economic management to quell uncertainty, saying these spurred international interest in lira assets.
The CDS decline has been accompanied by upgrades in Türkiye's credit rating and outlook, which analysts say underscores investors' increasing confidence in the economy
S&P Global Ratings last Friday moved Türkiye's long-term sovereign rating one notch higher to "B+" from "B," keeping its outlook positive.
This March, Fitch Ratings lifted Türkiye's credit rating to "B+" from "B" and reversed its outlook from stable to positive. That came two months after Moody upgraded the country's outlook from positive to stable while affirming its "B3" ranking.
Karahan said the current policy mix has contributed to the improvement in the perception of risk toward Türkiye and a reduction in the risk premium.
The central bank has aggressively raised rates by 4,150 basis points since last June, marking a turnaround after years of easing policy, seeking to tame inflation running at nearly 70%.
The bank kept the policy rate unchanged at 50% in April to allow its earlier monetary tightening, including the 500-point hike in March, to have an impact.
Karahan reiterated his earlier pledge that the CBRT would "do whatever it takes" to avoid any lasting deterioration in inflation.
He spoke as the bank nudged up its year-end inflation forecast to 38%, from a previous 36%. The governor said annual inflation will peak this month at 75%-76% after which a disinflation trend will take hold alongside cooling domestic demand.
The bank's forecast for end-2025 remains unchanged at 14%, while inflation is seen falling to 9% by the end of 2026.
"The improvement in Türkiye's risk premium has slowed down since the beginning of the year. Increased exchange rate volatility and deterioration in reserve outlook weakened the risk perception in March," Karahan said.
Yet, he stressed the "decisions we made in March reinforced our tight monetary policy stance, increased confidence in our policies, and improved the reserve outlook."
"With these developments, the risk premium has once again declined below the 300 basis points level."
