Economy in Turkey: Foreign demand for TL-denominated assets increasing

Strategist Tuğba Özay has highlighted that foreign investors have purchased $1.364 billion worth of bonds in the last two weeks. She stated, “As CDS [Credit Default Swap] continues to retreat, we will see both new credit rating upgrades and increased foreign demand for TL-denominated assets.”

The statements made by the President of the Central Bank of the Republic of Turkey (CBRT), Fatih Karahan, during the second inflation report meeting of the year were among the most important agenda items of last week. Özay emphasized the significance of Karahan’s remarks, stating, “In 2024, the Central Bank revised its inflation forecast. The year-end inflation forecast for 2024, which was 36%, has been updated to 38%. The reasons for inflation exceeding expectations since the beginning of the year include two main factors highlighted by the economic administration. First, strong domestic demand due to wage increases. Second, pricing behavior focusing on past inflation rather than expected inflation. On the other hand, the stickiness of service inflation is also being discussed. Here, we see the prominence of the effect, especially on rents. However, it is expected that the halt in rent increases will soften the rigidity in service inflation in the coming period.”

WE WILL SEE BOTH NEW CREDIT RATING UPGRADES AND INCREASED FOREIGN DEMAND FOR TL-DENOMINATED ASSETS

The economist also noted the attention-grabbing bond purchases by foreign investors in recent weeks, stating, “In the last 2 weeks, $1.364 billion worth of bond purchases have been made. On one hand, they continue to buy stocks. But we still cannot say that foreigners are coming and staying permanently.” Regarding the expectation of Turkey’s removal from the gray list and, on the other hand, the withdrawal of the Credit Risk Premium (CDS) from S&P during the week, she said, “The 5-year credit risk premium experienced the fastest decline since February 2020, reaching 276 basis points. As CDS continues to decline, we will see both new credit rating upgrades and increased foreign demand for TL-denominated assets domestically. In this regard, the decrease in CDS stands out as a very important development.”