Turkey is experiencing financial turmoil in the election race
The Turkish market was stable for six months until this stormy day for him – Friday, March 22. Investors used to calm on the money front were suddenly confused by financial turmoil.
During the day the Turkish lira suddenly began to fall against the dollar, and at the end of the week it was at 5.77. The stock index BIST-100 sold 100 thousand, stopping at 99 835.
The fate of the country’s dollar bonds also turned out to be sad. Issue of 2043 was record low – there were no such indicators since January 2019.
What caused the financial turmoil in the country?
Emerging markets have been selling assets on a massive scale since the morning. According to experts, the local catastrophe in the market occurred because of the reply of the leader of the country, Recep Tayyip Erdogan to the post of the American president Donald Trump that perhaps Israel will have power over the Syrian Golan Heights.
Erdogan himself believes that he has even mildly reacted to the latest idea of foreign policy announced by the US leader. Speaking at a meeting of the Organization of Islamic Cooperation, he said that the occupation of the Golan should not become legitimate – Turkey will not allow it.
The Turkish market, though in a rather shaky position, was more or less in balance, but Erdogan’s words made a real earthquake there. The Central Bank of Turkey (CBRT) reacted to the local economic disaster in an unconventional way. Thus, the regulator decided to suspend auctions of the weekly REPO for an unspecified period.
Experts say that the lira continues to weaken even after the Central Bank of Turkey “screwed” monetary conditions harder. And this fact suggests that the situation is quite complicated.
According to analysts, for the Central Bank the increase of the weekly REPO rate is probably the only opportunity to influence at least a little and do something about the situation. Now the bank should show that it has learned something, and its actions look as if it is just stalling.
The “Storm Day” on March 21 was preceded by a shocking decline in the net international reserves of the country’s main financial institution. In the first two weeks of March, reserves collapsed by six and a half billion dollars, and now only 28 and a half billion dollars. Such figures were only in January 2014, when in order to support the lira, the bank had to convene an emergency meeting at which it was urgently decided how to support the currency. And the only way out, as now, was to raise the repo rate.
Bloomberg believes that such a strong reduction in reserves can not be justified only by the fact that Turkey gives away foreign debt (in total, the state owes other countries almost four billion dollars). A Central Bank official who wished to remain anonymous said that the country has not only decided to pay off foreign debts, but also sells currency to energy importers.