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Morning Brief: CBRT May Accelerate Currency Adjustment as Energy Shock Builds

piyasa takvim

Rising energy prices driven by the Iran conflict are intensifying inflation pressures globally, while Türkiye’s central bank may be forced to allow a faster depreciation of the lira. Weakening demand offers some offset, but worsening inflation expectations and external shocks are complicating policy choices.

Energy Shock Deepens Global Risks

Restrictions in the Strait of Hormuz continue to disrupt global energy flows, sustaining upward pressure on inflation. Despite a fragile ceasefire, supply constraints remain severe.

Recent developments highlight the scale of the disruption:

  • Jet fuel shortages are emerging in Europe
  • Major airlines are canceling scheduled flights
  • Jet fuel prices in Singapore have surged 100% to $185 per barrel

These trends underline persistent tightness in physical markets and elevated geopolitical risk premiums.

Inflation Pressures vs Weakening Demand

While cost-side pressures remain intense, demand is showing signs of slowing — a factor that could partially offset inflation risks.

The Central Bank of the Republic of Türkiye (CBRT)’s April policy statement was widely interpreted as relatively dovish, suggesting:

  • A cautious balance between growth and inflation
  • A more gradual policy trajectory
  • Increased sensitivity to financial stability risks

ANALYSIS: When Will the CBRT Cut Rates? Global Energy Shock Clouds Outlook

Reserves Recover After War Shock

CBRT’s foreign currency position has shown notable volatility:

  • Pre-war level: ~$70 billion
  • Sharp drop: ~$8 billion
  • Recent recovery: ~$35 billion

Gross reserves have also climbed to $174.5 billion, marking a one-month high. Importantly, domestic residents have not significantly increased FX demand, easing pressure on the central bank.

Corporate FX Exposure Remains a Key Risk

Data released last week shows that non-financial firms’ net FX short position has widened:

  • Total deficit: ~$200 billion
  • Highest level since 2018

This reflects structural pressures in the corporate sector. With local borrowing costs hovering between 50% and 70%, firms are effectively forced to rely on foreign currency financing.

Inflation Expectations Deteriorate

April data signals a renewed deterioration in expectations:

  • Households and corporates both expect higher inflation
  • Fewer participants believe inflation will decline

Geopolitical risks and rising energy costs are key drivers behind this shift.

Key Issue: Exchange Rate Policy

The real appreciation of the Turkish lira is increasingly weighing on exporters.

Current outlook suggests:

  • USD/TRY year-end target: 51–52
  • Monthly depreciation pace (currently ~1%) may accelerate

CBRT is expected to move away from its tightly controlled, gradual depreciation strategy and allow a faster adjustment in the exchange rate.

Şimşek: Criticism of Economic Program ‘Very Myopic’

 

 

Foreign Flows and Market Sentiment

Recent data points to improving investor sentiment:

  • $0.6 billion weekly inflow into equities
  • Declining CDS risk premiums
  • Improved perception of Türkiye following ceasefire developments

This raises the question of whether equities may again present attractive entry points.

Global Focus: Central Banks and the Fed

Markets remain focused on central bank decisions this week:

  • The Federal Reserve is expected to hold rates
  • European and UK central banks likely to adopt a wait-and-see approach
  • Futures markets are pricing in possible rate hikes later this year

A key development in the US:

  • The investigation into Fed Chair Jerome Powell has been dropped
  • This potentially clears the way for Kevin Warsh to take over

Warsh is expected to pursue a different policy mix, including balance sheet reduction — a move that could push market interest rates higher.

Markets Driven by AI Momentum

Despite energy risks, global equities remain resilient:

  • Nasdaq continues to rally
  • Asian markets are hitting record highs
  • Semiconductor stocks are leading gains

Upcoming earnings from major tech firms will be crucial:

  • Microsoft, Alphabet, Amazon, Meta (Wednesday)
  • Apple (Thursday)

Commodities and Crypto

  • Brent crude: ~$107 per barrel
  • LNG prices: up 60%
  • Gold: holding above $4,700
  • Bitcoin: approaching $80,000

Conclusion

Türkiye faces a complex policy environment:

  • Persistent inflation pressures
  • Weakening demand dynamics
  • Rising external risks

In this context, CBRT may need to:

  • Accelerate currency adjustment
  • Preserve financial stability
  • Manage deteriorating inflation expectations

The coming months will be critical in determining whether the current policy mix can be sustained.

So0urce:  Emre Degirmencioglu, Kıbrıs Iktisat Bank

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