Page 13 - TURKRptAUG19

Fed brought in a 25bp rate cut and ended its balance sheet reduction two months earlier than planned. US President Donald Trump (who must have been climbing the walls in frustration when comparing his measly 25 with his pal Erdogan’s whopping 425, the highest seen in Turkey in 17 years) had been baring his fangs at Fed chair Jerome Powell for months prior to the loosening, urging him to throw some monetary caution to the wind. Powell, who regularly claims he’s entirely Trump-tweet-resistant, won’t be having it if you suggest he caved, although his institution failed to provide any solid economic explanation for why it had gone for its “mid-cycle adjustment”. There again, at least it said it did not observe any type of marked economic weakness that would necessitate a longer rate-cutting cycle. Cue, populist snorts of derision at 1600 Pennsylvania Avenue and sales of emerging market currencies that even gave the lira a wobble.
Even Turkish analysts in the mainstream media are on the point of pulling out a clump of hair or two as they puzzle over how it is not possible to explain the recent movement of the lira on a purely technical basis. Some of those who’ve freed themselves for a brief sojourn on social media have even plunged into Greek mythology to explain Ankara’s policy making. But, relax, you are not alone: let it be known that it is not possible to explain these matters in the post-truth world. To a populist, plain logic is about as welcome as a dog in a game of skittles. Of course, the populist takeover of all minds is not yet complete, so let’s have a quick dalliance with plain logic nevertheless—Turkey’s inflation is falling thanks to falling and even crushed demand in a recession-wracked economy, the country’s exports are booming thanks to the severe currency depreciation, its economy is rebalancing—quite painfully for the unlucky many—thanks to the squeezed current account deficit, the USD/TRY rate fell in anticipation of the Fed easing, and so forth... Meanwhile, Icarus, who dared fly too near to the sun on wings of feather and wax and plunged to his death in the sea, and Pygmalion, who fell in love with the ivory statue of womanhood he carved, are becoming rather popular with Turks who are in a hurry on social networks to keep close track of how much the dollar is set to sell for on the road ahead. They’re damn well not going to believe anything this Turkish government might say to inject confidence, and they’re buying up dollars whatever the Fed does and does not. Do they spend much time pondering over how real returns are calculated using lira interest rates or crunching the USD/TRY rate or the official inflation figures? None at all. Do they feel a change of heart coming on after digesting headlines such as “FX deposits in Turkey fall following Istanbul revote”? Do they hell.
Well, the Turks are just not interested by now, but Bloomberg is out of the blocks again, calculating Turkey’s real base rate at 4% following the 425 bp cut, while Turkey’s market community has been trying to identify what “a reasonable rate of real return” means and which methodology the central bank will use to calculate the real return. Meanwhile, the identity of the central bank governor may have changed but the regulator’s style of communication remains intact. New governor Uysal took three questions from three people during one round at the only press call the central bank governor holds after the quarterly inflation outlook release—and successfully avoided answering the persistent questions on the real yield.
13 TURKEY Country Report August 2019 www.intellinews.com