In Turkey’s economy model the central bank plays an important role. In the new economy model, inflation and interest rates are reduced to single digits and the infrastructure for permanent economic growth is prepared. In order to prevent the fluctuation of the exchange rate we have experienced in the last 3 months, the Central Bank has put into use 4 instruments. With these moves, the Central Bank will reduce inflation and interest rates to permanently low levels, and while Turkey is making foreign payments with a current account surplus, her hand will be relieved in the coming period.
4 important instruments
Let’s examine these 4 instruments commissioned by the Central Bank:
1- Currency protected deposit accounts. Targets were set for banks to convert 10% of their foreign currency deposits into TL by 17 April 2022 and 20% by 17 August 2022. The law, which states that banks that fail to achieve their target, will deduct an annual amount of 1.5% from the required reserve return received at the Central Bank over the amount below the target, came into effect. The aim here is to convert 20% of banks’ foreign currency deposits into TL and to sell 45 billion dollars of foreign currency to the Central Bank.
2- Selling 25% of the export proceeds to the Central Bank. In this way, up to 40 billion dollars of foreign currency will be sold to the Central Bank by the end of 2022.
Critical question: If 40 billion dollars of export value is to be sold to the Central Bank in 2022, if the current account balance is maintained, where will this 40 billion dollars foreign currency, which is required for foreign import payments, come from?
Answer: Turkey will solve this problem by selling 40 billion dollars of foreign currency to importing companies like Botaş, through the Central Bank, for energy imports of 40 billion dollars.
3- Repayment of TL rediscount credits used from Eximbank by selling foreign currency to the Central Bank. The goal here is to reach an annual balance of $25 billion.
4- Selling foreign currency equal to the value of the house to be purchased to the Central Bank in the purchase of housing by foreigners. The target amount here is to reach a figure of 15 billion dollars by the end of 2022.
$125 billion acquisition target by the end of 2022
The Central Bank aims to purchase a foreign currency of 125 billion dollars from these four items until the end of 2022. The increase in reserves of 85 billion dollars in the Central Bank will greatly ease Turkey’s foreign payments in the coming years.