From Last Week to This Week…

Dear friends, inflation rate was announced at the beginning of last week and apparently the current level of inflation will make it difficult for Turkish economy to reach the end of year target of 65%. There is still a mathematical possibility that the MTP targets can be met, however constantly fluctuating energy and commodity prices, constant price hikes and high exchange rates are turning this hope into a remote possibility.


Figures show that the problems experienced so far in export are at a manageable level. Turkey is currently in a position where there is no trade deficit except gold and energy. But both the record-breaking kg value of exports and high energy prices prevent us from running a trade surplus. We urgently need to focus on the production of the intermediate goods we import. There is no other option but to wait for energy prices to calm down in the short term.


I think that the details of the Meeting of the European Political Community held in Prague may prove useful in soothing tensions in the region. It is important that the tensions between Azerbaijan and Armenia are brought under control and that European countries can engage in dialogue outside the EU scope as well. The number of such contacts must be increased in order to ensure that controlled tensions do not turn into conflicts.


“The Borrowing Cost in Foreign Currency Increases”


On the other hand, the US is preparing a response to Saudi Arabia and the countries in the region according to the outcomes of the OPEC+ summit. OPEC+ countries’ attempt to raise oil prices naturally caused some reaction in an environment where the Fed is trying to tame the demand-pull inflation by introducing interest rate hikes. It is reported that democrats will bring a proposal to Congress regarding US military bases in the region.


Amidst all this chaos, Turkish Treasury continues to borrow funds from abroad. The interest rate on dollar-denominated debt securities offered by the government is now at 10%. Turkey’s CDS premiums remain constantly high and the country’s ambition to cut interest rates gradually increase borrowing costs while leading to an economic slowdown.


We see that the net reserves of the CBRT, excluding SWAP, have declined to around minus 56 billion dollars, which shows that foreign currency reserves, deposited in the Central Bank’s vault with swap opportunities, are sold and consumed with a “back door” policy so that the Dollar / TRY level does not exceed 20.00. Most obviously, this is not a sustainable situation.