Turkish markets brace for pre-election trading week
The dollar opens at TL 32.07 and euro at TL 34.7 in initial transactions on March 25
After the Central Bank of the Republic of Türkiye's (CBRT) move, the dollar, which closed at TL 32.02 last week, started near TL 32.07 in March 25 transactions.
The CBRT's measures, including the interest rate decision, are being closely monitored amid the Turkish lira deposit interest rates exceeding an average of 55%. These measures have tempered expectations of sharp exchange rate increases post-elections.
On the other hand, consumer loan interest rates have peaked, reaching 76%, with the average rate rising to 67.4%.
Pre-election trading week begins in markets
As the last trading week before the elections kicks off, attention is drawn to the increasing demand for foreign currency. During this period, total foreign exchange reserves, which exceeded $145 billion in December, have decreased to $127.9 billion. Over the past five weeks, foreign exchange deposit accounts have risen from approximately $174.6 billion to $182.8 billion. Foreign investors withdrew approximately $800 million from stocks and bonds in the last three weeks before the interest rate decision.
Dollar and euro exchange rates
In response to this scenario, the policy interest rate was raised to 50% last week. Subsequent movements in exchange rates are being closely monitored. Last week, the dollar closed at TL 32.02 TL, starting at TL 32.07 in March 25 transactions. Euro is priced at TL 34.70 TL in initial transactions. Meanwhile, at the Grand Bazaar, the dollar remains near TL 32.8, and it's noted that the margin between the two exchange rates, which was around TL 1 before the central bank's decision, has narrowed somewhat and decreased to 80 kurus.
Current state of deposit interest rates
The effects of the interest rate hike, aimed at discouraging foreign currency demand and promoting Turkish lira deposits, will be monitored this week. According to the latest data released by the CBRT, the interest rates applied to Turkish lira deposits as of the week ending March 15 averaged 55.66% for one- to three-month maturities. Deposit interest rates have also remained above 50% for maturities between three and six months for the third consecutive week. Eyes are now turned toward potential new increases in deposit interest rates this week following the 500 basis point rate hike.
Peak levels in loan rates
Meanwhile, consumer loan interest rates averaged 76% for the week ending March 15, and the average for all consumer loans rose to 67.4%, reaching the highest levels in recent years. Economists warn, "As part of tight monetary policy, loan interest rates are also on the rise. This helps to constrain demand and tackle inflationary pressures. This situation could lead to a more sluggish outlook for the economy in the second quarter."
Expectations for dollar after election
Economists suggest that it would be inaccurate to attribute the potential post-election increase in exchange rates solely to events following last year's elections. They state, "Conditions are improving in favor of the Turkish lira. The elimination of election uncertainty followed by an extended holiday period will bring calm to the markets. With its recent actions, the central bank has conveyed the message that investing in the lira will yield greater returns. We may begin to see the effects of this, especially after the holiday period."
Positive approach from foreigners
Furthermore, foreign interest in Türkiye is being closely monitored following the central bank's steadfast stance. Deutsche Bank, which correctly predicted a 500 basis point increase for the March meeting, stated in its assessment following the central bank's action, "Pressure on reserves may ease in the upcoming period. The balance of payments appears more positive, and inflation targets seem more realistic. Investing in the TL is now safer."
