The Central Bank Will Not Surprise the Market…

When we look at the markets, we can see that continuous funding helped economic activities in some sectors to take a positive turn. However, as a side effect of this monetary policy, exchange rates keep rising. But what’s going on in the rest of the world?

The Fed members and the officials of the International Organisations disagree on the method of fighting inflation. Well, no one is against the fight against inflation. However, there is confusion about interest rates and the duration of this fight.

While some Fed Members suggest that modesty is key when it comes to rate hikes, others reinforce expectations of sharp hikes until the inflation target is met.

Although the Fed’s rate hikes barely affect inflation, they negatively contribute to a slowdown in commodity prices. For this reason, officials suggest that they would make efforts to at least bring the cost inflation under control..

ECB set to rise interest rates in summer

The ECB President Lagarde’s involvement in the interest rate debate has stirred things up because some members prefer a rather modest hike, and they are worried about economic growth. But concerns have peaked over skyrocketing rents in many countries, including Germany. There are also similar concerns about essential food prices. Therefore, I can say that the opposing views on interest rate hikes can hardly have an effect on the final decision.

The situation in Turkey is obviously different. There is a serious gap not only between inflation rates and policy rates, but also between inflation rates and market rates. Despite all this, no official has announced an interest rate hike schedule yet. The debate continues between those who say, “Increase those rates!” and those who say, “Don’t!”. There are also hopes and expectations that economy would improve within six months. And this whole situation unfortunately paves the way for a rise in exchange rates at any moment.

Normally, the exchange rates, which sharply go up when the dollar gets stronger in the parity, remain rather calm even though the Euro appreciates for the reason I mentioned above. While interest rate hikes continue at full pace abroad, it is not easy to increase the attraction for TRY-denominated assets. Therefore, interest rates in government bond auctions are continuously rising.

Maybe after six months, things could really start to get better, but I can guess more or less what we will experience in the meantime. Obviously, difficult times lie ahead.