Page 75 - bne_May 2021_20210501

bne May 2021
Opinion 75
In the case of Turkey, we have seen exposure reductions since 2016, but in our view we are not yet at the end of the line and are still at moderate declines compared to Ukraine or Russia. And such an external deleveraging process, with simultaneous macroeconomic vulnerabilities and event risks, continues to threaten much uncertainty for investors and the currency.
Moreover, we see no clear allies or backstops in the case of Turkey. The central bank is (again) a political second-hand agent. Turkey will not be going to the IMF before a full
disaster scenario. In any case, a first step towards the correct assessment of the action corset would be no interest rate cut this week by the Turkish central bank, indeed rather an at least verbally hawkish bias for the coming months.
Here, the central bank of Ukraine is a model pupil in its statement: "The NBU stands ready to raise its key policy rate more resolutely in order to curb fundamental inflationary pressures, stabilise expectations, and bring inflation back to its target." In any case, the NBU will probably raise the key interest rate again this week, and is still considering further hikes. The key interest rate should possibly go to levels of 9-10% over the next six-nine months.
We do not see any chance that the Turkish central bank will be in a position to follow this route.
RUB stronger, UAH at least temporarily,
TRY on a one-way street
And as is often the case, everything comes together. In addition to the country specifics outlined above, global trends
MOSCOW BLOG:
It’s time for a new
pan-European security
treaty
Ben Aris in Moscow
Five years ago I wrote an op-ed calling for a new pan- European security treaty. The piece opened with these words: “We are in the middle of the worst political crisis since the end of the Cold War and there is a very real, albeit still remote, possibility of war in Europe.”
That piece was written in the aftermath of the annexation of Crimea and the political crisis that followed. Everyone became very nervous as the fighting in Donbas escalated, culminating in the downing of Malaysian commercial airliner MH17 in July 2014 that took tensions to a new level. An undeclared war had broken out in Ukraine that was in danger of getting out of hand.
also speak more in favour of Russia and Ukraine than Turkey. The strong global cyclical recovery dynamics favour emerging markets, which clearly benefit from rising commodity prices, while energy importers like Turkey and/or countries at the beginning of global industrial value chains suffer from global energy and transport cost increases.
Moreover, we expect a traditional spring revaluation in
the UAH rate, caused by seasonal currency oversupply by agricultural producers, as well as an improved financial account balance compared to 2020. Therefore, we see USD/ UAH below the 28 level in the coming months, finishing the year around the 28 level.
For the RUB, apart from sanction risks, the fundamental support from the current account will seasonally weaken in Q2. We believe that due to geopolitical pressure the decoupling of the rouble from the oil price will persist in the coming months, which is why we have revised our short-term forecast upwards to 75 in Q2, 73.5 in Q3 eop, and 72.5 at year-end 2021.
We do not think that the Turkish lira will come back any time soon below the USD/TRY 8 level, and would see it at least at the 8.30 to 8.50 level if material policy (space overestimation) glitches can be avoided. But this is not a given in Turkey, compared to Russia.
Gunter Deuber is the Head of Research at Raiffeisen Bank International in Vienna. Local RBI Research teams contributed to this analysis.
Here we are five years on and basically nothing has changed. The fighting in Donbas continues, albeit at much lower levels now. We are once again in a political crisis and the talk of war is back. Russia has unnerved the US and EU, not to mention Ukraine, by bringing up a large amount of troops to the Ukrainian border and reinforcing those already in the Crimea – the biggest non-scheduled troop movements since 2014.
While, as bne IntelliNews columnists Mark Galeotti and Robert Homans said in editorials, the chances of open warfare remain low, it is still a very real possibility.
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