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bne December 2020 Companies & Markets I 15
On November 10, business daily Dunya reported that Turks continue to hold on to their physical gold and FX.
On the same day, a Reuters newsroom outside Turkey quoted an unnamed forex trader at an unnamed Turkish bank as saying that locals’ demand for hard currencies and in particular gold was evidently persisting in the financial system.
Reuters’ Turkish service, on the other hand, quoted unnamed bankers as saying that the lira strengthening on November 9 following the exits of the central bank governor and finance minister was mainly ridden by foreigners and that lira positions on the London swap market significantly rose for one day.
There was one or a few billions worth of USD inflows, according to one of the unnamed bankers.
Local individuals both bought and sold while FX purchases were more dominant on the part of the institutions, an unnamed banker told Reuters Turkish.
BloombergHT, on the other hand, reported on November 9 that foreigners and local individuals bought lira but local institutions bought FX.
The central bank will release its portfolio flow data for this week on November 19 at 14:30 local time.
Who’s boss?
“We are in a historic struggle against those who want to force Turkey into modern capitulations through the shackles of interest rates, forex rates and inflation,” Erdogan said on November 10, warming to one of his well-known themes.
Turkey would overcome political obstacles to work on improving economic growth, employment and exports, he added.
Erdogan also once again ruled out the IMF route.
If we want to take what Erdogan says deadly seriously, then there will be no rate hike and no cheap assets for the City of London.
But the markets preferred to focus on the new finance minister Lutvi Elvan’s pledge in a written statement to rein in inflation and focus on a “market friendly” transformation of economy.
Those who think they can snaffle a bargain amid the enlivened Turkish markets have until November 19 when the central bank has its next scheduled monetary policy committee (MPC) meeting.
“I would think to something around the 15% mark,” Timothy Ash of Bluebay Asset Management wrote on November 10 in a note to investors looking at policy rate prospects.
If Erdogan plans to wait until the scheduled meeting before making the next rates move, Turkey will remain open to some shockwaves as the intraday volatility on its markets is rolling like the ocean waves once again.
Also on November 10, Goldman Sachs analysts reiterated their cautious stance against over-interpreting the installing of
a new central bank governor and new finance minister.
“Most importantly,” Goldman ponders whether there will be enough political support to bring about the required tightening.
The US investment bank has stuck with its forecast for a hike in the main policy rate to 17% by end-2020 from 10.25% currently.
And, no joke, the most generous grader of Turkey, Fitch Ratings, said on November 10 that the replacement of the central bank chief brings the possibility of an improvement in the country’s monetary policy credibility.
Douglas Winslow of Fitch told Reuters on November 6 that the lira had not actually caused “severe stresses” in the external financing positions of the banks or corporates; and the trend in Turkey’s FX reserves had “become somewhat less negative”.
Only a few hours then went by before fresh political turmoil over the lira and central bank reserves started in Turkey with the firing of the central bank governor, announced
by presidential decree during the early morning hours of November 7.
Maxim Rybnikov of Standard and Poor’s told Reuters on November 9 that the ramifications of Turkey’s replacement of its central bank governor and the departure of its finance minister on monetary policy remained uncertain.
The funniest story of the day was perhaps from Bloomberg. It suggested that Russia was pursuing a plan to “quickly” sell eurobonds before “Sleepy Joe” Biden takes over at the White House.
Erdogan wrote a letter to Biden on November 10 to congratulate him on becoming president-elect. Erdogan does love letters. Trump’s October 2019 “Don’t be a tough guy. Don’t be a fool!” letter to Erdogan remains one of a kind in the history of modern diplomacy, though Trump still has the
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