How long will our ammunition last?

Last week, CBRT made its move and it passed regulations to bring TRY liquidity and foreign currency bank deposits under control in order, maybe not to stop USD/TRY but at least to slow in down a bit.

We all know very well that none of the measures taken without eliminating the main problem first unfortunately bring only temporary benefits. As you may remember, CBRT had executed similar interventions before, which were only of service to slow down the increasing exchange rate of foreign currencies. A slight decline can be observed since Friday. However, as I said earlier, in order to achieve a permanent success, different circumstances are needed.

Nevertheless, it’s important that the CBRT has noticed that there are risks facing the year-end inflation target. When they finally realized that public foreign currency sales won’t help exchange rates achieve stability, by tightening liquidity, they decided to prevent people from buying foreign currency using CBRT money.

“ Better not to miss market opportunities…“

In short, CBRT said, “Those who have the money shall give it to those who don’t have any”, adding that if people need Turkish lira, they shall sell foreign currency. I’ve said this so many times before: When people postpone paying their debt they owe to banks or third parties and start buying foreign currency instead, this whole phenomenon leads to sharp rises in exchange rates. CBRT must thinking the same thing as it is trying to administer a shock therapy to the market by tightening the already scarce liquidity. But, as I said, its effect will be limited. It should be known that there’s a certain limit to foreign currency sale by public banks.

Let us also remember that the resistance level of USD/TRY, which hit 6,50 last year, recently touched higher levels. If exchange rates start rising again despite foreign currency sale to the public, exchange rates will probably hit a peak level they’ve hit before.

I strongly suggest to those have foreign currency-denominated debt that they should not miss this opportunity of falling exchange rates for no good reason, and buy foreign currency little by little to save it. We’ve seen many times before that the abovementioned interventions amounted to nothing stable. So, you need to lower your floating risks in times of interventions either by markets or economy administration.