It’s already time for Structural Reforms…

It can be seen that, on the hand, TRY keeps on appreciating, while on the other hand, market parameters do not actually confirm TRY’s gain in value. For instance, exports volume continues to rise, which is good news indeed. But the decline in imports is not, since it means economic growth to slow down.

November inflation rate will probable turn out lower than expected due to base effect but I really don’t expect Central Bank to decrease policy interest rates just based on a slightly lower rate on inflation in November. I can, nevertheless, say that interest rates in markets are slowly falling back from record high levels.

Interest rates are slowly decreasing thanks to BDDK’s (Banking Regulation and Supervision Agency) tremendous performance that we could almost call “full-court press”. Financial Institutions are reporting their “lowest and highest” interest rates to the BDDK every day. As a matter of fact, I find it a quite positive thing that regulatory authorities keep closer track of market actors’ behaviours than they used to, however, I do not believe that stability could be achieved by exerting pressure on supply-demand equilibrium.

The fact that Government is taking new steps to improve Construction and Real Estate industries such as the termination of debt tender offers has upset international markets. Turkey’s CDS premiums reaching a high plateau despite the recent decline in exchange rates and interest rates are clear indicators of global markets’ displeasure.

The fact that Turkey’s current account deficit, which I frequently mention in my morning reports, is financed through all sorts of severe difficulties is another big issue is upsetting the world. Hot money flows into the country while its origin remains unknown… CBRT used more than 16 billion dollars of its reserves in January-September period but net errors and omissions items has somehow exceeded 17 billion dollars, which means recent movements in balance of payments look quite suspicious indeed let alone Turkey’s large surplus in current account balance is terrible news.

“Decline in Exchange and Interest Rates apparently conflict with some parameters…”

Surprisingly good news about Turkey’s diplomatic relations can help improve this negative outlook. We had witnessed Turkey to conduct a more moderate and powerful diplomacy in the summit in Argentina. All of these however do not change the fact that Turkey’s CDS premiums have reached a high plateau. This situation clearly shows that Turkey is in urgent need of structural reforms which have been neglected before because the Government thought that their successful implementation would take a very long time. This could also help us solve the problem of “finding funds”.

As a matter of fact, Turkey is capable of finding the financing it needs. However, we are talking about a type of financing which cost would keep increasing constantly. If both the Fed and ECB continue down their path for the reduction in the balance sheet, it would be more difficult than ever to stop interest rates from rising, which I think would lead banks to change their attitude and real sector to stop running out the clock.

Market would offer new opportunities as long as we take our time to think through before making decisions.

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