Economy in Turkey: September 18 cruical day for dollar / TL and Istanbul Stock Market

(Article by Evren Devrim ZELYUT, on Yeni Çağ Newspaper)

“Monday will be a crucial day for the dollar and the stock market. We’re not saying the dollar will skyrocket and the stock market will crash on Monday, but the markets will receive a strong signal, and this signal will come from overseas…“

“Before delving into the details of this signal, let’s evaluate the current situation in Turkey based on the latest data. This way, we can understand how important the upcoming signal will be and what kind of results it might have on the dollar and the stock market.

1- “Short-term external debt stock calculated using external debt data with a remaining maturity of 1 year or less, was $206 billion in June, rising to $210.0 billion in July.

When evaluated by debtor, it is observed that the public sector has a share of 19.9%, the Central Bank has a share of 22.1%, and the private sector has a share of 58.0% in the total stock.”

Unfortunately, our short-term debt is increasing…

2- As of the 14th of this month, according to the CBRT Analytical Balance Sheet:

Foreign Assets: 3,290,084,747 Turkish Lira
Total Foreign Exchange Liabilities: 3,053,839,274 Turkish Lira
(Foreign Exchange Reserves = Foreign Assets – Total Liabilities)

So, how much are the borrowed dollars in the form of swaps?
Net Reserves = Reserves – Debt (swaps) 8,700 – 74,000 = -67 billion dollars.

Unfortunately, the Central Bank does not have a strong outlook in terms of reserve position. In addition, the increase in short-term debt indicates the accumulation of risks on the exchange rate.

What we call the “summer abundance,” with increases in agricultural and tourism product/income, may lead to food and currency price increases in the fall as the season ends.

3- In July, the budget had a surplus of 48.6 billion Turkish Lira. Due to taxes and price increases, in August, it recorded a surplus of 51.3 billion Turkish Lira, reducing the budget deficit for the January-August period to 383.4 billion Turkish Lira.

However, with earthquake expenditures and the continuation of current price increases, it is expected that inflation will rise, which will lead to increased demand for the dollar as it continues to deteriorate the quality of life for people.

The price increases made for the budget deficit are also significant sources of inflation, as they contribute to the amount of money printed for Central Bank Reserve Option Mechanism (KFK) payments and Treasury support.

M3 money supply (demand + time deposits + currency in circulation + securities issued) which was 9.7 trillion Turkish Lira in June, reached 12.3 trillion on September 8th.

According to this table, it is evident that inflation will exceed 70 by the end of the year, leading to a significant depreciation of the Lira.

Another factor affecting inflation is oil prices. Last week, prices rose above $93 due to Saudi production cuts, which will increase inflation in Turkey through energy costs.

If oil approaches $100, it could push inflation towards 80, and this could change the year-end target for the exchange rate to 35.

In the short term, there is no solution other than attracting foreign capital to prevent these factors from creating inflation. If capital can be secured, defending the keeping rate at a certain level will be possible, which is why the new week is crucial.

Mr. Şimşek, in the United States, will meet with investors at Citibank on Monday and at Goldman on Tuesday. The news that will come out of these two meetings will be a turning point for the dollar and the stock market.

We hope to receive good news; otherwise, the dollar, and consequently, inflation, may set new records towards the winter.”

(SOURCE: translated from article by E. D. Zelyut on Yeni Çağ web page)