The economic model, which can be called “Low interest, low inflation” or “Interest cause, inflation is the result” and which was perhaps first applied to the literature by President Recep Tayyip Erdogan, is being tried to be ended with the steps taken by Mehmet Şimşek and Hafize Gaye Erkan, who were appointed after the elections. Alongside Mehmet Şimşek, who frequently stated that a white page will be opened in the economy with the rhetoric of “return to rational ground”, CBRT Chairman Hafize Gaye Erkan, who displayed a passive appearance with interest rate hikes, is at the focal point of the markets.
In particular, the fact that the interest rates were increased from 15 percent to 17.5 percent by 250 basis points in the last meeting caused the criticism that the new administration still did not act independently and increased interest rates to the extent allowed by the Erdogan administration. Currently, the eyes and ears of the market are hinting at the extent to which the CBRT’s additional measures and tightening rhetoric will take place.
However, among the market actors, although there are those who criticize the moves of the new administration, there are those who find the gradual and relatively slow rate hikes positive, especially on the foreign investor front.
Nick Eisinger, Vanguard’s Emerging Markets Fixed Income Fund Manager, stated that Turkey should avoid a major balance of payments problem and emphasized that economic pressures should be followed carefully by the management. The effects of the decisions taken by the CBRT on the balance of payments are great.
Local elections in March are critical
Liam Peach, Senior Emerging Markets Economist at Capital Economics, said in a statement that the current Erdogan government wants to avoid an economic recession ahead of the local elections that will take place in Turkey in March.
“There is a huge gap between interest rates and inflation, but investors still believe in the new administration’s policy change,” Peach said in a statement. “If the interest rate rises to 30% by the end of the year, belief in a gradual tightening cycle may strengthen,” he said.
However, Paul McNamara, Investment Director of GAM Investments, pointed out the recent slowdown in loans and said that some signs of moving away from the “hot and fast growth” system have begun to be given to the markets by the new economy management.
As long as loan growth continues to decline, we look more positively towards Turkey”, McNamara said, adding that they have not invested in Turkey yet, but they are waiting for an opportunity to invest and they are not far from it.
Improvement in CBRT Reserves Draws Attention
According to the information provided by Reuters, the recent increase in the CBRT’s reserves is another development that foreign investors find positive about the general economic course of the country. Especially, it was stated that the improvement in Net International Reserves after the Central Bank of the Republic of Turkey (CBRT) stopped intervening in the dollar/TL parity was remarkable on the foreign investor side, and it was emphasized that the depreciation of the TL was followed closely.
Investors Wonder Details of “Gulf” Currencies
Detailed information on how and under what conditions the investment of 50.7 billion dollars, agreed upon during President Erdogan’s Gulf visit, will enter Turkey is one of the most frequently asked questions on the part of investors. While investors and market players underlined that the mentioned $50.7 billion investment will benefit Turkey, Çağrı Kutman, Senior Fixed Income Sales at KNG Securities, said, “It is still unclear how and when Turkey will receive the Gulf investment, but it will definitely help.”
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