The 27% increase in gold prices in international markets this year has contributed $21 billion to the Central Bank’s reserves, which hold 766.7 tons of gold. The decline in foreign exchange reserves by $7.5 billion since the beginning of the year has also led to an increase in the share of gold in total reserves from 41.5% to 50.6%.
The Central Bank’s foreign exchange reserves have always been a closely watched indicator. International reserves are held by the Central Bank to service Turkey’s foreign currency-denominated debts, provide necessary foreign exchange liquidity to counter external shocks, support monetary and exchange rate policies, and provide confidence to markets.
In countries like Turkey with a current account deficit, the interest of economic units in foreign currency makes reserves important. In a high inflation environment, the low interest rate policy increased demand for foreign currency, causing reserves to decline to historic lows. The change in economic management then implemented a series of interest rate hikes to replenish the eroded reserves.
Impact of the Istanbul Mayor’s Arrest
In May 2023, just before the elections, the Central Bank’s gross foreign exchange reserves stood at $98.457 billion. However, on March 14, they had risen to over $171 billion. However, on March 19, a corruption operation targeting several individuals, including Istanbul Metropolitan Municipality (IMM) President Ekrem İmamoğlu, increased market tensions.
Following the increased political tension in mid-March, both domestic and foreign investors turned to foreign currency, and the Central Bank tried to meet the demand for foreign currency by using its reserves to prevent the inflation fight program from being disrupted. By May 2, the decline in reserves due to political turmoil had reached $40 billion. An interest rate hike and precautionary measures were taken, and the Central Bank worked to strengthen its reserves again. The gross reserves, which had fallen to $138 billion on May 2, rose to $168.5 billion as of July 14.
Looking at the details of the Central Bank’s reserves, it is clear that gold has a significant share. At the beginning of the year, the reserves stood at $155.1 billion; $90.8 billion was in foreign exchange reserves, and the remaining $64.4 billion was in gold reserves of 766.7 tons.
Rapid increase in gold’s share
While the gold reserve accounted for 41.5% of total reserves at the beginning of the year, this ratio has now risen to 50.58%. This increase was driven by the 27.5% increase in gold prices in international markets to record levels this year, as well as a decline of around $7.5 billion in foreign exchange reserves since the beginning of the year. The gold reserve, which was $64.3 billion at the beginning of the year, stood at $85.3 billion as of July 14. In other words, the increase in gold prices this year has made a net contribution of $21 billion to the Central Bank’s reserves.
Source: https://www.dunya.com/kose-yazisi/rezervlere-altindan-21-milyar-dolarlik-katki/787469
