COMMENT: Weekend hit to TL

Volatility in USD / TL does not decrease. The exchange rate, which moved suddenly on Friday night, closed the week at 8.11. strong trend of the US dollar, and expectations of all developing countries, including Turkey, will continue to rise during the second quarter of interest on US bonds (GOI, Market = GOP). Fx has created a concussion. Turkey’s exacerbations caused by the blockade of the Suez Canal special Brent oil was also used as a sales motive.

The MSCI GOÜ stock index, which tried to recover from the 8-month low throughout the day, began to fall again in the Latin America session. The hot money drain from the Republican Party will soon begin. Winds from the outside world are unlikely to fill the TL’s sails in the coming months.

The resident’s currency selling slowed the dollar / lira rally last week, but dollarization is likely to resume this week. Markets will remain restless until the CBRT Monetary Policy Committee meeting on April 15. Relations with the United States can also be high on the agenda in a negative way at any time.

Erdogan’s Turkey has lost its qualification to invest in global funds with very serious policy errors. It is estimated that the credit rating will be lowered in the market. From this point on, no action other than a sharp rise in interest rates will bring the hot money back. As I will explain in my article today, Turkey no longer needs an external anchor. This anchor could be solving the S-400 issue with the US, the start of expanded Customs Union negotiations with the EU, and a standby agreement with the IMF.

According to QNB Finansbank research: “According to the latest portfolio data announced by the CBRT, during the week of March 19 when the CBRT raised the interest rate by 200 basis points, the equity portfolios of foreign investors were 60 million dollars and 427 million dollars went into their bond portfolios. The size of the TL-denominated portfolio of foreign investors has shown a horizontal trend since the beginning of this year.

In addition, we calculate the flows in the short-term swap positions of non-residents from the banks’ off-balance-sheet exchange position announced by BRSA and the change in the swap amount of the CBRT. This channel experienced $ 1.3 billion in inflows last week, thus reversing a substantial $ 1.6 billion outflow from the previous 3 weeks.

At the end of October, the TL-denominated bond portfolio of foreign investors was $ 4.4 billion, $ 0.7 billion for the equity portfolio and $ 15.3 billion for the swap portfolio; there was a total inflow of 20.4 billion dollars ”.

We will see how much of this amount has escaped next Thursday when new data is released. However, there may still be around $ 10 billion of hot money in the running and lining up to escape.

Foreign exchange sales, which reportedly reached $ 7-8 billion per resident, also stabilized the foreign exchange market in the last week. However, these sales came from high-wealth “players” who kept low-cost foreign exchange and went on to generate profits. With inflation steadily rising in the market, the loss of confidence in the government, and more importantly, with the expectation that the governor of the CBRT, Professor Kavcıoğlu, will make a permanent rate cut in 2 weeks, we will see residents buy currency this week. These purchases will constantly increase the dollar / TL.

The effort to balance the rate by selling foreign exchange through public banks is futile, as was the case during the Berat Albayrak period, because there is not as much foreign currency left in the system, much less the CBRT. As everyone talks about DTH residents’ huge savings in foreign currency, they forget that last year the entire current account deficit was financed by the transfer of national currencies abroad.

Eventually, a temporary ceasefire was achieved in exchange for the EU and Erdogan to stop starting a new crisis, but what kind of action the White House will take on the S-400 is a question mark. As the signal from the White House can give this month CAATS additional sanctions, sanctions, like a sword of Damocles that prevents the quality of the capital from entering Turkey as well.

Under these circumstances, it would be insane to cut interest on April 15. People can decide to withdraw the currency they have in banks. That is why I do not expect an interest rate cut on April 15th.

On the contrary, I am of the opinion that investors will sell TL until the CBRT raises interest rates again. The question is not how much the CBRT will cut interest rates, but when Erdogan will understand the cost of his mistake and start looking for a solution.


FÖŞ said: WHEN and how can we get out of this bottleneck?

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