THE DOUBTS ABOUT TURKEY, especially among foreign investors, cannot be removed with the surprise dismissal of Central Bank Governor Naci Agbal, and the replacement of Sahap Kavcioglu immediately after the Central Bank raised the interest rate at the Monetary Policy Committee meeting on March 18.
A rush out of Turkish markets, which started with this reshuffle, resulted in record-breaking foreign exchange outflows, especially in the first two weeks. In the week of March 19-26, there was an outflow of USD 1.9bn and USD 505m in the week ending April 2, resulting in USD 2.4bn lost for Turkey.
How weird, actually. It is still not well understood why such an exit and the operation that caused the exchange rate to jump suddenly was needed. If the problem is that the Central Bank increased the interest rate to 19% on March 18, the question is still why this interest has not been lowered.
If the problem is not the interest rate, the question is why this operation was needed, which cost Turkey billions of dollars and caused the country to pay a serious cost due to the increase in the exchange rate by about 15%. There is no justification, at least we do not know one! Foreigners are still timid!
Foreign investors, who fled Turkey after the operation at the Central Bank, did not give signals of a later return. Foreigners feel like they are fortune telling; “Should I return to Turkey or not?” After the panic of those two weeks was over, foreigners started to observe Turkey. There has been neither such an intense exit nor a significant entrance since.
There was a one-week delay in the data release of the Central Bank due to the public holiday and we do not know the results for the first week of May yet. Second week data was released on Friday. What is observed is that there is a small entry in the last week of April and the first week of May. This situation is valid for both stocks and domestic debt securities.
Foreign investors cannot get rid of their anxiety. Can we blame them? The dismissal of Agbal, who changed the view of the Central Bank, resulted in the recurrence of these concerns. Who can guarantee that the interest rate, which is now kept constant at 19%, will not be pulled down rapidly after a while by taking a step that will never comply with the requirements of the economy? Naturally, this leads to a ‘wait and see’ policy.
In fact, after the exit of USD 2.4bn in the two weeks following the change of governor on March 22, returning to Turkey has become advantageous again. For example, the dollar, which regressed to 7.27 on March 19, was around 8.30 a week later. What could be as advantageous for a foreigner who sells the security in his hand and buys the dollar at 7.27 and who waits on the sidelines for a while, bringing the same dollar again this time and switching to TRY at 8.30 levels?
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