Turkey prepares to repay $5 billion deposit to Saudi Arabia
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The Turkish Central Bank's reserves rose by approximately $79 billion in the second quarter, the country's fastest increase within the last four decades.
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President Recep Tayyip Erdogan receives Crown Prince of Saudi Arabia Mohammed bin Salman during an official ceremony at the Presidential Complex in the capital Ankara, Turkey, June 22, 2022. (AFP)
Turkey's Central Bank announced on Wednesday that it has agreed to terminate a $5 billion deposit transaction made with Saudi Arabia last year.
The agreement was made in an effort to reduce the Turkish Central Bank's foreign liabilities, the monetary authority said in a statement.
After years of reduced reserves stemming from foreign exchange interventions, Turkey is able to repay the deposit to the Kingdom, marking a milestone for the Central Bank for the revival of its balance sheet.
The bank had foreign exchange liabilities that exceeded $60 billion at a point, which were successfully reversed after it abandoned unconventional policies last year, enabling the interest rate to achieve a benchmark rate of 50%.
“We have largely eliminated swaps with domestic banks and are now reviewing deposit agreements with international counterparts,” Central Bank Governor Fatih Karahan said in an interview with Bloomberg this month.
“Turkey is moving to a much better underlying position with net reserves now positive," said Tim Ash, an emerging markets strategist at RBC BlueBay Asset Management.
The Central Bank's reserves rose by approximately $79 billion in the second quarter, the country's fastest increase within the last four decades, according to Bloomberg Economics. However, disregarding exchange with commercial lenders, the next reverse generated an estimate of $10 billion in the first week of July.
Turkey's inflation drops to 71.6% in June
Turkey's economy is gradually being revived following years of economic deterioration.
The country's annual inflation rate dropped to 71.6% in June, undergoing disinflation for the first time in months, official data showed on July 3.
"The disinflation process has begun," Finance Minister Mehmet Simsek said on X.
The process began in May after consumer prices reached a peak of 75.5%.
"We will all see the fever of inflation decrease in the coming months," Turkish President Recep Tayyip Erdogan said earlier this month, who attempted to combat inflation by withdrawing his opposition to interest-rate hikes.
In June 2023, the Central Bank gradually started increasing its key rate from 8.5% to 50% due to the rapid spike in consumer prices and the collapse of the Turkish lira.
Capital Economics economist William Jackson said the unexpected decline in the Turkish inflation rate was the beginning of a new phase in the disinflation process, predicting that the rate will undergo steeper falls in July and August.
"Still, it's likely to be a bumpy path down, with inflation unlikely to drop below 40 percent until 2025," he said.
