Deutsche:  Turkey: recent developments and  what’s next

In this report, we discuss recent developments regarding the FX-protected lira deposit scheme, provide an update on our inflation and monetary outlook, examine the CBT’s international reserves developments, and look into latest foreign flow dynamics. Last but not least, we discuss possible implications for the currency.


FX-protected lira deposit scheme: We believe that the FX-protected lira deposit scheme has prevented further cash withdrawals from the banking system. This said, the overall interest from retail has been rather benign so far. The behaviour of corporates on the back of the additional tax incentives and maturity changes announced this week, will be important to watch.

Inflation outlook: Headline inflation should reach 46% YoY in January and 53% in May. We also expect elevated levels at close to 50% until November in case of no monetary policy changes from the CBT. However, inflation should sharply fall in December towards 30% on the back of large base-effects.


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Monetary policy outlook: We expect the CBT to keep the policy rate at 14% unchanged on Thursday next week. This said, we maintain our view of a large policy rate hike in late Q1-22 on the back of elevated inflation pressures.


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International reserves developments: The CBT`s net reserves excluding FX swaps hit an all-time low of -USD 56.9bn as of 7 January after FX interventions in December.

Foreign flow dynamics: Foreigners have continued to sell local assets in December and early January. The share of foreign holdings in local bonds (outright) has now reached 2.8% – a new record low. The share is also close to an all-time low at 41.2% in equities.

Market implications: We continue to see risks for lira depreciation in light of the CBT’s extremely loose monetary policy, rising inflation expectations, and Turkey’s widening current account deficit in the winter months.

However, cheap valuation, light positioning and potentially ongoing FX interventions, coupled with the new unorthodox measures, have led us to turn neutral on TRY in our January.

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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.