Page 16 - Turkey Outlook 2023

“Erdogan chooses growth” is a fallacy. There is no growth in Turkey.

3.2 External environment

Tightening via both monetary and fiscal policies marked out 2022. How
long this approach can possibly last is under observation. The finance
industry has already stepped forward with media campaigns for
reversing the tightening.

The anticipated November 2022 shake-up of global markets, prior to
the start of the new year rally, did not take place. As a result, the new
year rally could lack verve this year.

Under normal conditions, the new year rally continues up to February.
Then a reverse comes, followed by a recovery.

May is the month that usually runs according to the principle of “Sell in
May, go holiday.” Following a recovery, the summer liquidity dry-up then
creates a shake-up in August. It is followed by a recovery that takes
place by November.

Federal Reserve (Fed)

The Federal Reserve (Fed) launched the global tightening cycle in
March. As a result, the upper limit of its federal funds target rate (main
policy rate) rose to 4.50% in December from 0.25%.

The US state central bank governors currently expect the rate to reach
5.25% in 2023, up from 4.75% in September and 4% in June.

As things stand, the market expects a 25bp increase at the next open
market committee meeting to be held on February 1.

CPI inflation in the US saw 9.1% in June and gradually declined to
7.1% in November. As of December 29, the average gasoline price in
the US was down 4% y/y to $3.16 per gallon (Record: $5.02 on June
14).

Since mid-November, when the October inflation data was released,
showing a few basis points better than expected, the mood in financial
markets has suggested that the tightening has ended.

It should be noted that we are going through a bear market that will last
until rate cuts are seen on the horizon. The prices of financial papers
and assets (equities, bonds, real estate, commodities and so on) are
caught in a declining trend despite some recovery bounces, while the
USD index and interest rates are pulled by a rising trend.

It is obvious that a few basis points better-than-expected in the inflation
readings do not mean anything when it comes to shelving the inflation
problem. However, volatility is a must in financial markets. Prices

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