USD/TRY which has exceeded the 15.00 limit for the first time after 4 ½ months, continues to increase with the impact of the globally strengthened USD index. The TRY devaluation is expected to continue in the national economy, which is open to external shocks thanks to its high foreign exchange (FX) need, low reserves and the loss of foreign investor interest due to its negative real interest rate.
►MEASURES NOT TO DELIVER A PERMANENT SOLUTION
USD has appreciated across the world. Turkey is open to external shocks with its deteriorated external balance and savage financial pressure. The measures that have been announced will not deliver a permanent solution.
►BASIC POLICY IS WRONG
The basic policy is wrong. Everything will be useless when the real interest rate is minus 30 points. The surge will continue afterward. The FX demand of those who have FX payments will be higher than exporters due to concerns over the possible end of FX and new steps if restrictive rules are set up. But why have FX rates increased now? The Federal Reserve (Fed) is the most important factor. Interpretations were made in October-December 2021 that the Fed would not affect Turkey and that it would not raise the interest rate before 2023. The Fed raised the interest rate by 25-50 basis points. Even a 75-point hike has been discussed. The interest rates of bonds will rise while equities drop abroad. The market has been convinced that the Fed will quickly raise the policy rate. Economy management overlooking this has reduced the real interest rate to negative in Turkey. FX and goods and services that are traded in FX will be in demand with the restriction. This trend cannot be stopped with FX-protected TRY deposit accounts.
►USD LIKELY TO STRENGTHEN FURTHER
PROF. ERHAN ASLANOGLU
The fluctuation in FX rates is the reflection of foreign developments on Turkey. The sharp increase in U.S. bond yields sets all markets back. It will be very dangerous for U.S. bond yields if they exceed inflation as they have in the past. This is not the base scenario but there is such a possibility. There seems to be an unfinished movement, even if the yields tend to exceed expected inflation. Stock exchanges cannot carry out pricing and decrease when the discount rate is not known. This may reflect on all assets after some time. In brief, the global risk appetite has quite decreased and the strengthened USD is likely to appreciate further. The tendency to reach for a “security blanket” has paved the way for money outflow from Turkey. The demand of the real sector, which does not want to take on FX risk, has been added to this. I think that these are the main reasons for the movement in FX rates. Intervention in FX rates could also be decreased for balancing. Although the fluctuation may continue in the short term, it will not be too strong. Stress may continue until U.S. bond yields are stabilized.