It looks like Monetary and Capital Markets will go through some serious challenges before the upcoming elections. Although interest rate rise is a far risky development than the exchange rate rises, the only instrument that the everyday people is interested in is the exchange rates, in other words, how much is Turkish lira is depreciating. We, the economists, however, do know once the interest rates are on the rise, it takes quite some time for them to fall again and how easily the economy is affected by it. Everyday citizen just does not care about that.
International institutions, on the other hand, are exerting pressure on the CBRT to hike rates one more time, which, in my opinion, should be taken slow, however, the fact that the Fed did not make any decision regarding interest rates this month has made the next process more difficult than it was. So, we might expect 3 more hikes in the remaining time, one of them in December. Therefore, the other two hikes will most likely take place in summer and fall. The FOMC is scheduled to make its upcoming statements in June, August, September, November and December. If no hike takes place in June, it will probably happen in August, in which case, we should expect consecutive hikes in November and December. Even there is no hard proof yet; rate hikes may be anticipated to take place in June, September and December respectively in equal intervals.
“Stock Index at critical level…”
If everything happens as we anticipate, the CBRT will have until June 7 to make a well-thought-out interest rate decision as they will be holding no meeting in May. However, considering the Fed decision will be released on the 13th of June, CBRT may wait until July 24 to announce its own. In other words, CBRT may have the chance to see the Fed action and then take its own decision at the first meeting. Given the circumstances, the CBRT should go for a policy simplification in July at the latest before engaging in any hike. Due to their current debt level, people with good sense can see that any rise in interest rates would create a big risk. And it is absolutely not possible for interest rates to go down unless inflation goes down too. Therefore, any rate hike move by the CBRT would be nothing but adding fuel to the fire.
In the meantime, BIST is standing at a critical level. If one more sales wave hits the market the index level of 100.000 may show further decline. Although currency and stock markets, and benchmark rate look like they are moving independently from each other, such decline in the BIST would bring negative impacts on all instruments. That is why we should monitor the markets very closely today.
PS: Oil prices hit their highest level in 4 years. Not good for current account deficit and inflation.
