The Central Bank, after a 7-month hiatus, with a surprise decision, lowered the policy rate by 100 basis points to 13%. Why was such a step taken? It is said that;
“In order to prevent the growth rate from falling to 3% in the third quarter… Due to the confidence provided by the increase in foreign exchange reserves… Thanks to the support of money from abroad… Interest was not lowered before because there was no such money… There is great support from Russia and the Gulf… Tourism” with the optimism brought by the income of the people. In order to increase exports thanks to the high exchange rate…”
Let’s analyze the numbers together without saying which of them is correct. Foreign investors became net buyers after a long break in the week of August 12. They bought $270 million worth of stocks and bonds. The figure in question is the highest level since November 2021. The net international reserves of the Central Bank increased by $ 3.87 billion in the last week to $ 15.68 billion. Net reserves hit $6.1 billion in early July, the lowest level since 2002. There was an increase of $ 9.5 billion in 1.5 months. Total gross reserves increased by $5.1 billion to $113.7 billion. The increase in the last two weeks is 12.5 billion dollars. If there is no trust in the economy, would a truckload of foreign currency come in 2 weeks? This is just the beginning, baby entrance… You will swallow your little tongue when you see its mother!..
Foreign currency deposits of domestic investors decreased by 267 billion dollars last week, adjusted for parity effect, and regressed to 216.5 billion dollars. The most important development is that companies that bought 4.7 billion dollars in foreign exchange in the previous week sold 45 million dollars last week. Why? Because banks started to give commercial loan interest between 14-18 percent by accepting this as collateral in case the companies convert their foreign currency deposits to currency protected deposits. In this case, the exchange of foreign exchange deposits between banks accelerated. Instead of buying foreign currency, companies switch to currency-protected accounts to have cheap TL loans. Thus, the demand for foreign currency in the market decreases. In addition, companies are provided with cheap finance. There was a very limited increase in the exchange rates despite the interest rate cuts and the excessive appreciation in international stock markets as legal persons did not turn to foreign currency. Doesn’t the Central Bank know that the interest rate cut will weaken the TL, raise the exchange rates, so that the costs will increase and inflation will remain at its peak? The idea that the exporter will sell more goods with a high exchange rate is not correct. Turkey is already the apple of the eye of the European market with the withdrawal of China from the supply chain. Export companies cannot keep up with orders. Moreover, the more exports, the more intermediate goods imports.
There is only one explanation for the rate cut. In September, there will be a very large fund inflow from abroad. The Central Bank knows this very well. As a result of this, there would be a sharp decline in the exchange rates, so this decision was taken from the front. I have been writing for a long time that such a move will happen, as it has been confirmed with this interest rate cut.
You will see that our total reserves will exceed 200 billion dollars at the end of September, with large fund inflows, and the exchange rate pressure will completely disappear… Losses in TL will not exceed the annual CPI, and the dollar will fall to 15 liras in the first move. In order to facilitate the real sector’s access to finance, the balance amount of the Credit Guarantee Fund, which gives lifeline to the market, has been increased from 500 billion liras to 1 trillion liras… In other words, the total amount of loans that KGF can provide as surety has increased from 500 billion liras to 1 trillion liras. Banks did not want to pay interest on commercial loans because they were worried about their return. To overcome this problem, the capacity of the credit guarantee fund was increased. SMEs will now be provided with an extra source of 500 billion liras at low interest rates. Thus, both production and employment will increase, while the world will shrink, Turkey will maintain its stable growth. Those who pretend to be some so-called finance professors who smashed the interest rate cut will go to the ground!..
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