Turkey’s currency hit an all-time low this week, while the central bank’s net reserves marked their largest rise on record as it stopped supporting the lira.
The lira reached a record low of 26.10 against the US dollar on Thursday during low liquidity hours and later firmed to as much as 25.55.
But it later gave up those gains to stand at 26.03 at the end of the day.
The currency has weakened some 28% this year, losing most of its value after the re-election in late May of President Recep Tayyip Erdogan.
Just days before Erdogan was re-elected to power, the national currency hit rock bottom three days before the vote, trading at 19.92 to the US Dollar.
The currency free-fall continued even though Erdogan has since moved to backtrack on his years of unorthodox economic policy.
The central bank raised its policy rate by 650 basis points last week, in the strongest signal of a return to orthodoxy, after years of loose policy despite soaring inflation under Erdogan.
Erdoganomics, as economists have dubbed the President’s financial policies, is believed to have led to a devaluation of the Turkish lira, while inflation soared to its highest level under Erdogan’s watch to above 85% last year.
As part of the policy pivot, the central bank stopped using its reserves to counter forex demand and support the lira.
Its net reserves touched an all-time low of negative $5.70 bln last month after a years-long decline.
As reported by Reuters, four bankers calculated that the central bank’s net forex reserves had risen by about $8.5 bln last week to around $9 bln, which would mark the largest weekly rise on record.
The largest weekly rise in net international reserves was in February 2002, with $8.2 bln.
The bank’s total reserves were also expected to have risen by about $4.5 bln to stand at about $107.5 billion as of June 23.
This increase was lower than expected, leading some analysts to suspect that new Central Bank Governor Hafize Gaye Erkan, a former Wall Street banker, may have limited room to manoeuvre under Erdogan.
Meanwhile, Turkey’s inflation surged after a late-2021 currency crisis sparked by rate cuts that Erdogan had called for, based on his view that interest rates cause inflation.
Annual inflation touched a 24-year peak of 85.51% in October before easing.
According to a Reuters poll, monthly inflation was seen at 4.84% in June, even as the annual reading was expected to decline slightly to 39.47%.