In a series of investor meetings held in London by Minister of Treasury and Finance, Mr. Nureddin Nebati, it was stated that he expects the exchange rate to remain at its current level after the lira fell 44% against the dollar last year. Notes that stand out according to the information conveyed in the meeting;
· In a post on Twitter, Nebati said that he is trying to explain the “Turkish Economy Model” to foreign fund managers and international bank managers.
· Nebati said that government-led measures have restored confidence in the currency.
· Nebati said that Turkey will soon announce new steps to bring under the pillow gold to the banking system.
· Nebati also said that the loans given to businesses from the Credit Guarantee Fund can be increased when necessary.
· Nebati said that foreigners may find it difficult to understand the reason for high Turkish inflation due to unspecified “cultural differences”. In the statement made by the Ministry of Treasury and Finance, It was stated that Mr. Minister did not have such a discourse and it was due to the misunderstanding of the participant.
We understand that in the talks aimed at re-increasing the interest of foreign investors in Turkish assets, it is aimed to give confidence through the new economy perspective. As you know, the new model, which was put forward within the framework of President Mr. Recep Tayyip Erdogan’s economic doctrine that high interest rates fuel inflation instead of curbing it, aims to increase economic growth and employment by applying low interest rates and running a current account surplus. After the change in the policy perspective, and if we consider the changes in duties in the Central Bank and the Ministry of Treasury and Finance, we understand that Turkey is not expected to respond to rising inflation with a direct rate hike. The CBRT lowered the interest rate by 500 basis points in total after September, during which the TRY lost value rapidly and inflation accelerated. Inflation reached 48.7% in January, the highest level of the last two decades. In dollar currency, We watch lower volatility levels after Mr. Erdoğan announced a new currency protected financial product towards the end of December.
Turkey aims to maintain a high growth path in the post-pandemic economic recovery phase. The non-orthodoxy policies implemented for this purpose increase the uncertainty in the economy, and the possibility of creating a manual control mechanism especially on the exchange rates creates uncertainty in the market, which have a rising trend. We will monitor whether the transformation will be at the expected level due to reasons such as TRY-denominated returns in FX-protected deposits are well below inflation and the maturity period is long. Especially the months of March and April are important in terms of whether the demand will continue as they will coincide with the conversion period of the money of the depositors who prefer the 3-month maturity.
In terms of foreign interest, swap rates in London can be a good indicator. It is seen that the domestic reference rates of TRY are not a good indicator if you want to borrow TRY from the market at the moment. The divergence in interest rates also reduces the interest of foreigners in TRY instruments. At the point of clarification of the movement trend towards TRY, it seems that good foreign interest should come back. This will be achieved in two ways; Prioritizing price stability with policy tightening against inflation, which is the easy and usual direction, to offer positive TRY real returns. Or the trust phenomenon of the new economy model, which will go a long way. This will actually need to be supported by a structural transformation that will enable the economy to transform into net exports with added value.
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