‘We will see its impact on interest rates starting tomorrow’

ANKA Economy coordinator Erdal Sağlam, in his analysis, drew attention to the Central Bank’s increase in interest rates to 50 percent last week. Stating that we will start to see the effect of this as of this week, Sağlam also drew attention to foreign exchange reserves.

Sağlam’s analysis is as follows:

“We will start to see the effect of the 5-point interest rate increase made by the Central Bank before the election as of this week. We immediately saw the first effect of the surprise interest rate increase when the melting in foreign exchange reserves stopped. We will start to see how much the interest rate increase, which has an impact on exchange rates, will affect deposit and loan interest rates as of Monday.

It turned out that the melting of reserves as a result of the inability to stop the demand for foreign currency was the decisive factor in the 5-point interest rate increase decision being postponed before the election. In the three days before the Central Bank meeting on Thursday, the meltdown in reserves reached up to $1.5 billion per day. On the first day the decision was taken, we saw that this melting stopped and there was an increase of 300 million dollars in reserves.

WHY WAS THE INCREASE MADE NOW?

Reserves fell to their lowest point before the May elections, reaching minus 77 billion dollars, including the public sector, excluding swaps. On Wednesday, the day before the interest rate decision, the net reserve, including the public, excluding swaps, was determined as minus 75 billion dollars. If the rapid melting had continued as it was, the lowest point in May would have been exceeded and the reserves would have fallen below minus 80 billion dollars. It is understood that this is why the Central Bank’s 5-point interest rate increase decision was brought forward.

It can be expected that the reserves will begin to recover within the next week, although not much. Because expectations were expressed in foreign bank reports that this surprise increase would not continue, and this determination is now expected to initiate short-term foreign capital inflows. It is estimated that foreign inflow will begin next week, the incoming funds will return to TL, wait for a while, and then invest in bonds or stocks.

Meanwhile, it is clear that the decisions to be taken after the election will be the main determining factor in the inflow of short-term funds. It is hoped that after the elections, the news about the new measures that have been prepared recently and the concrete steps to be taken may accelerate the inflow of foreign funds.

Meanwhile, it was observed that domestic investors’ demand for foreign currency and gold paused after the interest rate decision. Bankers say that the locals have stopped with the interest rate decision, but they predict that they will wait a while longer to exchange their gold and foreign currency. Factors such as the speed at which foreign fund inflows will come and how much this will improve reserves will be effective in the behavior of domestic investors. In other words, if the inflow of foreign funds accelerates, reserves begin to increase, and monthly exchange rate increases remain low, then it can be seen that locals also exchange the gold and foreign currency they have or keep in banks.

TL DEPOSIT INTEREST WILL BE IMPORTANT

The most decisive data, especially for small savers to give up foreign currency, will be the level at which TL deposit interest rates will rise from now on. If they see that they are getting a deposit income above inflation, then we can see that domestic investors will start to turn to TL.

Last week’s Central Bank policy rate increase did not provide a significant increase in TL deposit and loan interest rates. In response to the 5-point increase, TL deposit and loan interest rates increased by 1-2 points. We saw that bank branches remained inactive regarding both deposits and loans and were waiting for new instructions from their management on Monday morning.

Bankers expect that the 5-point policy rate increase will be reflected in deposit and loan interest rates by at most 3 points. It may not have much impact on loan interest rates; because the latest measures taken regarding loans seem to have already cut the demand for loan usage. Therefore, it can be said that banks do not have room to increase interest rates further in order to provide loans.

However, the increase in deposit interest rates, especially in TL deposit interest rates given to small savers, will be significant. Because the small saver who invested in gold and foreign currency chose this method because the interest rates offered to him were below the monthly inflation rates. In order for small savers to change their investment preferences and return to TL, small savers’ deposit interest rates will need to be increased.

It is unlikely that small savers will return to TL with current interest rates before reserves recover and monthly inflation rates begin to decline. In other words, we can talk about the possibility of small savers returning to TL only in the second half of the year. However, changing this preference can be brought forward with the measures to be taken after the election. To achieve this, the Central Bank may need to encourage banks to increase the interest rates they pay on small savings.

The effect of the 5-point interest rate increase on the markets will begin to be seen this week, but it is certain that the real effect will be seen after the elections. The dose of additional measures to be taken after the elections and how strict the fight against inflation will be will determine the future market movements.

The real impact of the tight monetary policy measures taken, including the last 5-point interest rate increase, will begin to be seen after the elections and we will begin to experience a period of strict contraction in the economy. It is important to remember that tight monetary policy will need to last at least 2-3 years. We hope that with the measures to be taken, the impact of this process on the low and fixed income segment can be relieved to some extent.”