February 5, 2019

In January 2019, the consumer price index (CPI) increased by 1.06% month on month and by 20.35% year on year; core inflation increased by 0.18% month-on-month to 19.55% on yearly basis.

Domestic producer price index (D-PPI) increased by 0.45% in January 2019 and 32.93% year on year.

Even though the core inflation which excludes food, energy, alcoholic beverages and tobacco, and gold price changes stays below headline CPI, the continuing pressure of food prices on inflation figures indicates that government measures have not been enough in fighting inflation.

Latest global PMI figures showed that output prices rose with a faster pace compared to input prices in January 2019. Likewise, domestic producer prices in Turkey maintained their higher course despite sharp fall in energy costs which is a factor that limits downside in consumer prices despite tax cuts.

Global producers expect higher output levels over the next 12 months according to global PMI figures. If this happens, higher commodity prices will keep pressure on consumer prices. However, current economic environment does not imply a solid inflation pressure in the first quarter of 2019.

According to current circumstances, we expect USDTRY keep moving in 5,10-5,30 range considering that Fed will hold interest rates for a long period of time and the CBT will continue to remain tight .

CBT will convene on 6th of March and we expect the Bank will hold its policy rate of 24%.



May 26, 2018

Appreciation of the US dollar against all the currencies…

Let’s list the reasons:

. The US settling accounts with every country that creates imbalance in trade and politics, and

(First, the US increased the tariffs on Chinese imports to close the trade gap with China. Besides, China bought US bonds. Thus, the US took a step to strengthen the dollar without raising the interest rates and without adversely affecting trade balance with the appreciation of the dollar.)

. Increasing the borrowing costs of European banks following raising the Libor rates before the US increased interest rates.

Following China, it will come to Russia and Iran.

When we look at the European side…

An emerging markets financial crisis triggered by Turkey can have very serious consequences on the European banks.

The course of Euro-Dollar parity…

European banks may face serious non-performing loans which may result in which may result in the Euro-Dollar parity moving down further below the 1.17 level.

Let’s not forget, Euro-Dollar parity was at 1,05 levels in the period of US President Trump first took office, then it increased to 1,25 levels. The expectation at the IMF and World Bank meetings held in last April was that the parity would rise to 1.30.

However, the steps that President Trump has taken and the US’s commitment to turn the trade deficit into its own advantage can take the EURUSD parity back down to 1.05 levels. This further worsens the challenging conditions in emerging markets such as Turkey.

What we try to explain is that we are in a vicious cycle in terms of countries, especially emerging countries, that are either beside or against the US.

In brief…

The dollar will appreciate in the world; as it gets stronger, the money outflows from the emerging market will increase, and the countries on the US side will be affected less compared to the countries on the opposite side.

As for the penalty for Halkbank…

Even the speculations over this issue put serious pressure on the Dollar-Turkish lira (USDTRY) exchange rate. We think that USDTRY will not increase to record levels of 4,90 due to the measures taken and 300 bps rate hike. However, from now on, statements coming from politicians and the size of the penalty for Halkbank will be crucial on the course of USDTRY.

The last action from the Central Bank of Turkey (CBT)…

Following the rate hike of 300 bps, CBT intervened the fx market with introducing option to repay exporters their rediscount credits in TRY at pre-determined and sub-market levels.  The good news here is that CBT took long-awaited action. If anything, CBT’s fixing rediscount credit at 4,20 for the USD would not be enough for keeping USDTRY around 4,70 levels.

Independence of the CBT…

The issue is both the independence of the CBT and what kind of monetary policy the CBT will consider following the snap elections due on 24th of June.

When we look at the AK Party’s declaration of election, we see that the independence of the Central Bank is not included so the important thing is that the uncertainty in this matter is continuing.

Finally, Central Bank President Çetinkaya and Deputy Prime Minister Mehmet Şimşek’s trip to London…

As Mr. Şimşek said, even if it is too late, the CBT took a strong step and now they will try to re-gain investors’ trust. However, in the time of banking holidays in London, we will all see to whom they will talk and how convincing they are.



May 14, 2018

The current account deficit recorded USD 4,812 million indicating an increase of USD 1,695 million compared to March of the previous year, bringing the 12-month rolling deficit to USD 55,380 million. In the same period, 12-month rolling trade deficit increased by USD 1.3 billion.

Improving tourism revenues and export performance support the current account.

However, the pressure of the election economy over the budget, rise in domestic demand and the volatility of Turkish lira pose upside risk on the current account deficit.



May 11, 2018

Moderate US inflation data boosted the Fed’s expectation that it will continue to increase interest rates gradually and thus interest in developing country markets has increased. Still attraction focuses Brazil, South Africa and Russia, while Turkey no interest in the market.

The reasons are as follows:

No rate action from CBT… The statement that the Central Bank would take all kinds of measures took place in a written statement following the extraordinary Economic Coordination Board meeting on Wednesday, the Bank’s interest rate increase expectation increased and the USDTRY dropped to 4.23 level. However, the USDTRY closed the week at 4.31 levels due to the lack of rate action from the Bank.

Risk of deterioration in the budget performance and the credit outlook of the banks… Implementing of tax reductions and housing loan interest rate cuts have been taken effect following the meeting of the Board and are causing the risk of deterioration in the budget performance and the credit outlook of the banks.

Stricter monetary policy and disengagement from budgetary discipline will cause the CBRT to take much harder action.