Why Did Turkey’s CDS Rise? – Bitcoin System

Turkey’s five-year credit default swap (CDS) premiums exceeded 900, their highest level since 2008.

When lending to any country’s treasury or company, the insurance policy you take in case that debt is not repaid CDS it is called.

Large international investment banks generally provide CDS against the foreign debts of countries, and if those countries cannot roll over their debts, this bank undertakes the payment.

These banks determine a risk ratio by examining the repayment ability and macroeconomic conditions of the countries in question.

Therefore, the increase in CDS values ​​makes investors believe that the probability of default is strong.

In other words, the rise of CDS confirms the fragility of our economy.

The reasons for the increase in CDS premiums can be attributed to the following reasons:

1-Monetary Policy Errors

Wrong policies regarding monetary policies have been implemented for a long time.

We can list many reasons such as hard interest rate hikes, sharp interest rate cuts, frequent dismissals, persistent and strict discourses on interest rates, playing with market settings frequently.

2-Fed’s rate hikes

Aggressive interest rate hikes by the US Federal Reserve (Fed) have a negative impact on countries that need foreign currency and have reduced reserves.

The appreciation of the dollar in international markets accelerates the depreciation of the TL.

3-Declining EUR/USD parity

As the EUR/USD parity regressed to 1 level, the dollar further increased the dollar/TL rate in the domestic markets.

When imports are in dollars and exports are in euros, the difference is clearly a loss to Turkey.

Another important weakness of TL stems from this.

4- Recession pricing and uncertainty

The reasons such as the new increases in the Kovid-19 epidemic, the continuation of the Russia-Ukraine operation, the continuation of the interest rate hikes by the central banks, the explosion of global inflation continue to affect developing countries like us more.

Problems on the energy and supply side make it difficult to fight inflation.

Turkey seems to neglect other problems because it prioritizes inflation.

Especially the increase in the current account deficit, the decrease in foreign exchange income, and responding to macroeconomic fragilities with populism are not enough to convince.

It is important for Turkey to take the CDS indicator seriously and lower it as soon as possible.

Spending time with irreverent policies can take the business to a more dangerous place.

What needs to be done is to reduce the risk premium with at least new steps, to give confidence to foreign investors in order to prevent currency attacks, and to announce the projects that are ready as soon as possible.

Early implementation of many projects prepared for election may reduce the demand for foreign exchange.

We have seen that CDS, which exceeded 800 before, dropped below 800.

It is important that the measures taken are explained quickly.

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