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Prospects Daily: U.S. housing starts increase; Turkey's foreign reserves drop from record high

Global Macroeconomics Team's picture

Important developments today:

1. Turkeys’ foreign reserves tumble in the wake of a two-month operation of currency intervention

2. U.S. housing starts increase, but building permits decline

Turkeys’ foreign reserves tumble in the wake of a two-month operation of currency intervention. Turkey’s foreign-exchange reserves declined more than 9% from a record high of $93.9 billion on July 8 to $85.1 billion on October 7 as the central bank has been selling dollars through regular auctions for more than two months in an effort to prop up the lira. Yesterday Turkey’s central bank intervened directly in currency markets for the first time in five years, selling more than $1 billion of its reserves. The bank has used up some 10% of its foreign-exchange holdings since July to support the lira, but the currency remains down 16% versus the dollar this year—the second worst depreciation after South Africa’s rand among major emerging markets. Several other emerging market countries, including Brazil, India, Indonesia, and Russia, also sold dollars recently to stem declines in their currencies. However, Turkey has among the lowest level of foreign-exchange holdings when one takes short-term debt exposure into consideration and its current reserves represent about four months of imports, giving it limited resources to stop the lira from falling in value.

U.S. housing starts increase, but building permits decline. Housing starts, the number of new private residential dwellings breaking ground, climbed 15% (m/m) in September to an annual pace of 658,000 houses started [see Chart at http://gem or]. Construction of multifamily homes in particular rose sharply, reflecting the recent decrease in home ownership and increase in demand for rental units. At the same time building permits, a proxy for future construction, declined in month-on-month terms to a five month low of 594,000 annual permits issued, signaling that the supply of private single family homes remains saturated by foreclosures that continue to enter the market.

Among Emerging Markets

In Central and Eastern Europe, Russia’s unemployment rate declined to 6% in September, this translates to 4.6 million unemployed persons in the economy, the lowest recorded since August 2008.