The Power of Verbal Intervention

The meeting held at the Presidential Palace yesterday has once again revealed a long-time forgotten fact: “Economy Administration’s power of verbal intervention”.

In most countries, through the statements they make as well as the instruments they possess, Central Banks and other market-steering institutions have the power to bring an impact on the economic parameters. That is why investors always try to stay tuned in official releases as well as the actions taken by the Authorities.

Following a statement that Economy Officials are to meet with President Erdoğan to discuss the ongoing rise in the USD/TRY, exchange rates have suddenly faced a sharp decline while stocks set foot towards an uptrend. By holding this meeting, the Government wanted people to know that they would not leave the markets unattended, which were tending towards deterioration for the last couple of days, and they were keeping a close watch of the situation.

“Trend and direction don’t mean the same thing…”

We witnessed USD/TRY fall below 4,30 immediately after a statement indicating that a meeting was to be held at the Presidential Palace. And as you can imagine, my phone began to ring unceasingly. Those who were wondering how far the duo would go up have now started to ask about the possible low levels USD/TRY could hit. A tragicomic, yet true, irony, isn’t’ it?

Maybe the real reason behind market fluctuations is the fact that the investors are too inclined to change their rational expectations in the blink of an eye. That is why the difference between “trend” and “direction” should be explained thoroughly.

I need to point out that exchange rates are still on upward trend even though they have taken a downward direction because of yesterday’s incidents. That is to say, direction is a short-term movement while a trend often displays a long-term continuity.

So, my advice to those having foreign currency debt is to act a bit more wisely when exchange rates drop and buy some foreign currency.

I’d like to conclude by saying that the yesterday’s meeting was quite rewarding in terms of making us remember the power of verbal intervention.