Market movements lately appear to be quite interesting indeed. Recent exchange rate movements which I think can be called “one step forward two steps back” have turned into something like “two steps forward one step back”. That is to say, exchange rates are rising and fluctuating simultaneously. “But why…?” That’s the question on everyone’s mind.
To further scrutinize this issue, I took a look at the works of Professor Eğilmez as well as many other academics specializing on this very phenomenon. Here’s a quick summary for you:
First of all, we can see that investors no longer want to take TRY risks as 2019 approaches. So, both national and international investors choose to turn once again to foreign currency, which actually is an annual phenomenon but it took 2 weeks for it to happen again as Turkey is considered risk by foreign investors. Almost all investors in Turkey slowly withdraw from the market right before Christmas but this time they did it a little too soon.
Besides, sharp monthly decline in inflation has led to further concerns whether or not CBRT will reduce interest rates. Investors thinking that Central Bank should avoid making further adjustments to interest rates are worried about the possibility where CBRT makes a wrong decision. Central Bank surprised us by making the right decision so far but I’m not so sure whether it will surprise us by making the wrong decision now.
“Warnings seem destined to remain nothing more than advices…”
Current account deficit expectations have declined when expectations that oil prices will rise started to take an upward trend. The fact that Iran has once again threatened to close the Strait of Hormuz after Qatar’s decision to leave OPEC has generated expectations that oil prices could begin to go up again. Markets seem to be under stress by the possibility that something that has positively contributed to Turkey’s current account deficit so far can turn into something negative.
In short, I think we should find it quite normal that investors’ intention to stay away from TRY especially in a conjuncture where we can’t possibly know what happens next. On the other hand, cancellation of treasury auctions, decision to sell asset-backed securities to improve banks’ liquidity, another bank’s decision to capital increase through rights issues, investment decisions by unemployment fund and the fact that government contributions to Private Pension System are made available for use are among many other things that worry investors.
OECD’s July report included numerous suggestions and warnings. Unfortunately, we are going through a period where all these warnings have become true.
I admıt that Turkey is going through tough times. However, all practices should be carried out in accordance with international rules and regulations in the most transparent way possible. I do not expect we’ll face any drastic change until the local elections. Therefore, I know that my warnings are destined to remain nothing more than advices, at least for now.