Turkey Slashes Dollar Sales to Energy Giant to Rebuild Reserves

Pedestrians pass the headquarters of the Turkish central bank in Ankara, Turkey, on Wednesday, July 31, 2019. President Recep Tayyip Erdogan, who fired Turkish central bank Governor Murat Uysals predecessor for not lowering rates, said that Uysals 425-basis-point cut last week is not enough."
Pedestrians pass the headquarters of the Turkish central bank in Ankara, Turkey, on Wednesday, July 31, 2019. President Recep Tayyip Erdogan, who fired Turkish central bank Governor Murat Uysals predecessor for not lowering rates, said that Uysals 425-basis-point cut last week is not enough."

(Bloomberg) -- Turkey’s central bank slashed dollar sales to the state energy importer in December to a record low for the month, as it aims to rebuild foreign-exchange reserves.

It sold $70 million to Botas, down nearly 90% from a year ago. Sales stood at $167 million in the final two months of 2020, compared with an average of $958 million for the same period during the past five years, according to Bloomberg calculations based on central bank data.

Central bank Governor Naci Agbal has vowed to rebuild foreign reserves, which fell during attempts to bolster the weakening lira last year. But he said last month that the bank would only purchase foreign exchange directly once it had spotted a change in the dollarization trend in bank deposits as well as stable capital flows into Turkey’s economy -- signs of a return of confidence in the lira.

The central bank declined to comment over the recent fall in foreign-currency sales to energy companies, which had to revert to the spot market for their currency purchases.

The monetary policy authority has been selling foreign currency to state-run energy distributors, mainly Botas, since 2014. The move was intended to reduce demand for foreign-exchange on the spot market as monthly payments for gas imports from Russia used to increase the lira’s volatility.

Turkey’s total gross reserves dropped 12% last year to $93.2 billion, while net international reserves fell by more than 65% to $13.5 billion as state lenders sold dollars to prop up the lira. The central bank borrowed tens of billions of dollars during former Governor Murat Uysal’s 16-month term through swap agreements with commercial lenders.

In a 2021 policy presentation, the central bank said it would continue to meet “a required portion” of the foreign-currency demand of energy-importing state companies. However, it signalled that “the amount of FX sales may be reduced gradually as long as market conditions allow.”