The Central Bank of Turkey (CBT) failed to raise rates despite the liquidation of reserves, and after more than eight pounds, the dollar exchange rate was taken from the Central Bank Governor in early November and Naci Agbal was appointed as the new Governor. With the change of the Minister of Treasury and Finance, the message that there will be serious changes in economic policies began to be given aloud.
We saw the first effect of these changes as an increase in the policy rate. The TCBM Weekly Repo, which is 10.25 percent, was first raised to 15 percent and then to 17 percent. In parallel with the increase in interest rates, “reforms” were often mentioned.
These increases in interest rates will be prone to Turkey, along with the expectation of domestic savings in foreign funds and foreign cash. Exchange rates fell for a while to 6.90, and foreign brokerage companies reported that the dollar would fall to 6.20.
Economist Yalcin Karatepe
However, none of these expectations came true. Residents’ foreign currency deposit accounts continued to rise while expected to decline. Foreign fund inflows were also very limited. While access to the bond market was limited to a total of $ 3.7 billion, it slowed rapidly since the beginning of the year and came out in the week of March 12. More than $ 900 million was traded from the beginning of the year to last week.
After the announced “reform packages” did not live up to expectations, eyes turned to a meeting of the Central Bank’s Monetary Policy Committee (PPC) last week.
Citing deteriorating inflation forecasts and developments in international markets as a reason, the MPC raised the “preloaded” policy rate by 200 basis points to 19 percent. This increase, which was slightly higher than expected, was particularly welcomed by foreign fund managers and was interpreted as an indication of the CBRT’s determination to implement an “Orthodox monetary policy.” The US dollar fell to 7.20.
But in any case, it happened on Saturday morning, and a decision published in the Official Gazette announced the dismissal of the chairman of the Central Bank, Naji Agbal. The unexpected and shocking decision was seen as a sign that the government would change its economic policy, and this morning, in line with expectations, caused a major turmoil in the currency, interest and stock markets.
The TL has been depreciated by more than 15 percent since the opening of Asian markets, where TL transactions are rarely made against the US dollar. With the start of operations in Turkey, 10 percent was lost. Estimates of future sales at the level of 8 pounds from state banks were not enough to put out the exchange rate fire.
Once again, the Central Bank’s experienced dismissal showed that it can now assume that Turkey is a country. It is almost impossible to predict what we will face tomorrow. However, there is one thing we can easily guess that it is impossible for exchange rates to fall below these levels. Incoming foreign investors suffered, albeit to a limited extent, and those who engaged in “transportation trade” suffered. Turkish Eurobonds are falling sharply, and 10-year interest rates are rising sharply. Foreign investors lose on every instrument.
Foreign “hot money” in Turkey is no longer likely to bring its source. The rapid increase in the default risk premium (CDS) to 500 points is an indication of how foreigners view the changing economic conditions in the country.
At a time when the Central Bank’s net foreign exchange reserves are negative and existing ones are beginning to emerge, it will not be possible to restore the confidence of local depositors in the TL, despite the inflow of funds from abroad. exchange rates will inevitably remain high. As inflation resumes, foreign exchange will continue to be a favorite savings tool for local investors.
It is unlikely that the new central bank management will increase self-confidence. Erdogan is likely to pursue a policy that will live up to expectations. We all know what that means.
The stock market collapsed
Operations in the stock exchange Istanbul were stopped twice this morning with “electric switches”. The stock index, which has lost about 10 percent of its value, is unlikely to recover. We know that foreigners have not been on the stock exchange for a long time and are mainly traded by domestic investors.
Rising exchange rates and interest rates will accelerate the deterioration in the balance sheets of stock companies. In particular, the Bank’s shares are likely to incur large losses during this period, as rising interest rates will be quickly reflected in deposits, the difference in lending rates will decrease, which will negatively affect profitability. For other companies, the rise in exchange rates and interest rates will upset the balance.
Although we often share our estimates of excessive stock market inflation, small savings, especially those moving in the hope of “easy money,” will now result in large losses.
The gold moves parallel to the dollar
We know the interest of local investors in gold. Since 2018, the use of gold savings has accelerated. Both the increase in an ounce of gold and the increase in the value of the dollar against the TL have made gold investors happy for a while. Although the fall in gold prices and exchange rates in international markets has disappointed gold buyers, today’s developments will prevent them from giving up gold. Gold has now become a long-term investment tool for those in their portfolio. But we can predict that the number of those who want to buy gold will decrease; because developments in foreign markets also affect gold prices. The price of an ounce is likely to fall. Therefore, foreign currency can be considered as a more attractive investment tool for citizens.
As a result
Complainants of high interest rates have now led to both high interest rates and high interest rates.
But there are still those who are looking for a ray of hope. Looking at the comments in the markets, we see that they often refer to the changes that will be made in the “cabinet” this week. The benefits you are reminded of: Turkey’s new governance model, the Presidential Government System, regardless of who sits in which seat. All decisions are made by one person and all policies can be implemented with that person’s permission. This order will not change, Turkey will be predictable, economic risks will remain high.
Let’s repeat what those who were fired or “forgiven” said when they left: God bless us in the end!
© Deutsche Welle Turkish