(Bloomberg) -- The Turkish central bank is working to return deposits placed by foreign counterparts as it brings down the liabilities accumulated when its hard currency buffers were under pressure.
“We have largely eliminated swaps with domestic banks and are now reviewing deposit agreements with international counterparties,” central bank Governor Fatih Karahan said in an interview with Bloomberg in Istanbul.
Such deposits have already been lowered by $1.5 billion over the last three months, and there’s a “roadmap to further reduce these liabilities in due course,” he said on Thursday.
The repayments would be another milestone for the central bank as it repairs a balance sheet badly damaged under previous leadership by a succession of currency crises and backdoor interventions in defense of the lira.
In an effort to boost reserves, the central bank has amassed around $20 billion in deposits and currency swap agreements that include deals with China, Qatar, South Korea and the United Arab Emirates.
Karahan didn’t specify which deposits had been returned.
Though never publicly acknowledged by Turkey’s central bank, Azerbaijan’s sovereign wealth fund has previously said it placed 1 billion euros ($1.1 billion) with it as a short-term deposit that’s been extended at least once. And shortly before national elections in May last year, Saudi Arabia announced it had extended $5 billion to the Turkish central bank through the Saudi Fund for Development — which policymakers in Ankara also never confirmed.
The central bank is now busy rebuilding its currency stockpile thanks to massive capital inflows flooding into Turkey this year following a shift toward more conventional economic policies.
Bloomberg Economics estimates foreign-exchange reserves rose by $79 billion in the second quarter, the fastest increase in at least 40 years. Net reserves, excluding swaps with commercial lenders, were still at only around $10 billion in the first week of July, it said.
Despite the improvement, Turkey’s reserve position is still below internationally accepted adequacy levels, according to Karahan. “We would like to further strengthen our reserves,” he said.
But “our primary goal is achieving disinflation in line with our targets,” he said. “The bank will continue to accumulate reserves as market conditions allow.”
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