Page 50 - TURKRptOct19

7.2 Lira under control of “invisible hand”
The lira’s odd reactions to the dramatic rate cuts continue to stretch the reasoning skills of market commentators.
Adam Samson of the Financial Times delved into the mixed and rather muddled expectations, asking “Why is the lira rallying?”
Samson quoted Paul McNamara of GAM as pointing out that there had been "a lot of talk" among investors that there would be an even deeper rate cut of around 400 bp. He also quoted Erik Mayersson of Handelsbanken as saying that the reduction was "more than expected by forecast economists (including myself), less than expected by investors".
“If the central bank is mindful of market expectations, the pace of easing is likely to slow down as the policy rate approaches a level which is tolerated by investors,” Piotr Matys of Rabobank told Bloomberg.
“Though 325bp is a bit above [the expectations], it’s nothing too dramatic,” an unnamed emerging markets portfolio manager told Global Capital.
The references made to anonymous “investors” in analysts’ notes are nothing unusual, but they do beg the question of who exactly is investing in the Turkish lira right now.
So far this year, foreigners’ net purchases of Turkish equities have amounted to $592mn while their net sales in domestic government bonds stood at $2.15bn.
FX deposits at record high. Turkish real persons’ FX deposits at local lenders rose to a fresh record high of $119bn as of September 27.
The positive thing here for officials is that Turks are not pulling their savings from the system, a course of action that would trigger a dramatic economic collapse and certainly bans on FX deposit withdrawals. It’s wise to remember that those FX deposits are just bank records. There is no such thing as so many dollars at the local lenders because the central bank sells reserve requirements via public lenders to keep the lira under control.
On the price development front, Turkey’s official inflation rate fell into the single digits in September from August’s 15.01% because of the base effect. That should then be reversed in November. However, the magical power of Erdoganomics could prove them wrong all over again.
Bye-bye economic history. One surprise that seems nailed on for the near future is growth figures that will defeat all lessons anyone thinks they’ve taken on board from economic history.
Erdogan’s son-in-law and finance minister Berat Albayrak said that he believed Turkey’s economy would post positive annual growth for 2019.
Both the consumer and producer price inflation figures would fall into the single digits in September while the current account would post a record surplus for July, Albayrak added.
Albayrak’s official figures are pretty swell, albeit not logical, but the rumour mill keeps churning on whether his father-in-law will fire him or he will manage to cling on.
Albayrak had not been seen in the media for a while.
Turkey’s Capital Markets Board has reportedly identified around 100 people who it claims were illegally trading in derivatives markets abroad.
50 TURKEY Country Report October 2019 www.intellinews.com