First the ECB, then the Fed and Finally the CBRT..



This September interest rate decisions will come one after the other. Everyone has a certain rates in mind, but the CBRT’s decision remains a mystery.


This month’s Fed rate decision and Turkish Central Bank’s rate decision will be released one after the other. The statements made by the Fed so far implies an increase of 75 basis points. Although the economic recovery in the United States does not seem to have affected all around the country, the Fed members seem to be determined to curb the soaring inflation.


Even it is unlikely, if the Fed hikes rate by a 50-basis point contrary to expectations, it will be showing its reservations about the “recession risk” to the whole world. In that case, the CBRT’s have stronger grounds for another rate cut, equally encouraged by the latest CPI figure which turned out to be quite lower than expected.


Today, the European Central Bank is anticipated to make a strong move against the rising inflation. After a 25 and a 50 bps increases, this time the ECB is expected to respond with a 75 basis points hike, just like the Fed has done. In this case, fluctuations in euro-dollar exchange rate might strike once again. As I said before, those who have euro-denominated costs or loans repayments should have taken advantage of a falling euro.


“A Harsh Autumn and Winter Ahead”


The current state of the market indicate that the last interest rate cut has not been helpful at all, and private banks are refraining from giving out loans, fearful of a severe September and October. I think that’s why the government is encouraging the public banks to launch a new loan campaign before the elections.


As Turkey always tries to paddle its own canoe, I can easily say that the required funds will be provided through money supply again and internal borrowing. And it is also obvious that sales will be made from the central bank’s reserves in order to prevent the exchange rate pass-through to inflation.


Here’s something interesting that caught my attention when visiting different places in Turkey: wherever I go, I often observe a constant shopping activity. This spending is mostly done by tourists or foreign residents in Turkey. It is an undeniable fact that these inflowing funds help our economy stay afloat. Increasing wages in line with the current inflation is also a contributory factor. But we must admit that this spending activity does not provide any noticeable good to Turkey’s foreign currency reserves. There is only a certain amount of foreign currency entering the country via exports or other foreign currency earning activities. Given the fact that the amount sold to keep the exchange rates stable without increasing the reserves is also known and clear, I think I could say that the Turkish economy currently survives with the help of short-term foreign currency inflows, not to mention the invisible funds flowing from Russia.


Everyone’s hope is to survive through the autumn and winter unscathed.