I tried to keep close track of both benchmark bond and BIST while I witnessed the sharp fall in exchange rates since Wednesday.
I must say that the rapid increase in benchmark bond and the sharp fall of USD/TRY were two contradictory developments, which suddenly made me think of this: Maybe the proposal for issuing “super bonds” is accepted and the investors who smelled the opportunity have decides to sell the old ones to buy new ones.
Nevertheless, interest rates exceeding 25% indicate very severe levels. If the Government is to issue a super bond, it should keep the annual compound interest rate above 30% to avoid investor dissatisfaction.
On Wednesday I attended home textile manufacturers’ Bursa meeting hosted by CNR Expo and TETSIAD – Turkish Home Textile Industrialists’ Association. Home textile products’ value per kilogram is almost three times higher than Turkey average and accordingly the levels of borrowing in the home textile industry are not so severe. However, they are worried because of domestic market troubles. Sector representatives are very well aware of the fact that mere manufacturing does not help create any value-added but the design and innovation are two musts when it comes to offering value-added goods and services. Accordingly, we mostly preferred to focus on the future rather than talking about current developments.
Naturally, they asked me a couple of questions about exchange rates and interest rates. My answer was “If you owe debts you should take the opportunity to sell when the exchange rates tend to decline” As for the interest rates, I had one thing to say, “They will continue to climb higher”
“Silent fall of Gold and Euro/Dollar parity…”
As the Holiday approaches, there is one thing that has gone unnoticed amidst all this chaos: Gold’s sharp fall in global markets. If dollar’s exchange rate did not go up so sharply, gold investors in Turkey would have faced serious losses. I am sure that individual investors have been terrified by this week’s sharp decline. I can guess that organisations investing in gold incurred significant losses.
Another important development of the week was the similar sharp decline in Euro/Dollar parity: investors will definitely have the upper hand when they convert their dollars into euros. I reckon that more and more people now would say yes to a survey on “Do you prefer euro as reserve currency?” However, we should expect various complications in case the parity falls below 1.10 considering that half the Turkey’s exports goes to Europe. Those earning Euro income but having dollar debts had got the advantage at the beginning of the year. But the winds have changed now.
I wish you all a very happy holiday.
