High Growth-High Inflation-High Interest Rates…Is this the new normal?

Fed decision is so close that everyone is holding their breath until the result is in. As I have mentioned in yesterday’s report, very few has a backup plan in case of an increase in funding costs.

Not just Turkey but also many nations of the world experience lack of working capital as well as liquidity crisis. It’s not hard to guess that things will get worse once the Fed hikes rates.

Considering Turkish businesses are carrying out their operations by 40% with equity and 60% with loans, a potential increase in the cost of funding won’t definitely be good news. But I have bad news for those who think they’re safe as they say, “We use money from LIBOR +1.5-2.00 interest rate”. This rate will go up about by 1 point each side at the end of the year. Yes, I’m talking about foreign currency debt with higher than 5% or 6% interest rate.

“Interest rate or foreign currency… Which one is more important?”

Ability to adapt to any circumstance is the humanity’s greatest asset. If the “high growth-high inflation-high interest rate” trio will be the new normal, we will have to adapt handle it too. Remember that investors in Turkey have always been afraid of gradual’ interest-rate hikes rather than rapid and dramatic rate hikes. I also want you to remember that, only five years ago, USD/TRY, which is around 3.93 today, was remaining around 1.80. This means Turkish lira depreciation has been greater than 100% over the course of five years.

Businesses that managed to survive in the process have either switched strategy or industry, sold their business to a serious buyer. The scary thing is that “domestic and national” firms may go extinct as if they face one more harsh increase in the exchange rate.