Breaking News
Get 40% Off 0
Is NVDA a 🟢 buy or 🔴 sell? Unlock Now

Investors look beyond Turkey rate hike disappointment, for now

Published Jul 21, 2023 08:32AM ET Updated Jul 24, 2023 01:36AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A logo of Turkey's Central Bank is pictured at the entrance of its headquarters in Ankara, Turkey October 15, 2021. REUTERS/Cagla Gurdogan/File Photo
 
JPM
+0.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Jorgelina do Rosario

LONDON (Reuters) -Turkey has under-delivered on rate hikes for a second month, but foreign investors are as yet unfazed and expect fresh money flows, cooling domestic credit and rising currency reserves to provide some breathing space to the battered emerging market.

Policymakers hiked interest rates by 250 basis points to 17.5% in their second meeting under new Governor Hafize Gaye Erkan on Thursday, continuing to reverse the low-rates policy that had been favoured by President Tayyip Erdogan and promising more tightening and additional measures.

While that leaves the benchmark well short of inflation, which is running at almost 40%, the direction of travel is the right one, fund managers and analysts said.

"The country should avoid large balance of payments challenges for now," said Nick Eisinger, fund manager for emerging markets fixed income at Vanguard.

"It is hard to establish when pressure will arise again, but it might not be for a while."

The country's international bond prices clung to multi-month highs, with shorter-dated bonds trading just below par.

Investors were betting the government would try to avert a recession ahead of local elections in March, and were reassessing the timing of much needed further rate hikes, said Liam Peach, senior emerging markets economist at Capital Economics.

"There is a huge gap between rates and inflation, but investors still have faith in this policy shift," Peach said. "They will tolerate a gradual tightening cycle if the key rate rises towards 30% at the end of the year."

International bonds are still widely held by foreign investors, though much less so the domestic ones exposed to the lira currency's wild swings.

However, that might also be changing said Paul McNamara, a London-based investment director at GAM Investments, pointing to the lower trajectory of domestic credit growth - a potential signal that Turkey might be moving away from red-hot growth that had fuelled recent boom-and-bust cycles.

"As long as credit growth keeps heading down, we are becoming more positive on Turkey," he said. "We haven't put money to work yet, but I'd say we're an awful lot closer to it."

The central bank on Thursday introduced a 15% minimum reserve requirement for FX-protected lira deposits in a move that bankers estimated would suck 450-500 billion Turkish lira of liquidity from the market.

BETTER BUFFERS

Rising central bank reserves are another positive sign.

Net international reserves rose to $13.25 billion in the week to July 14, continuing a rebound from record lows after the bank stopped using them to support the lira.

The currency has lost more than 30% so far this year and hit a record low of 27 to the dollar this week..

Investors are focused on Thursday's central bank's inflation report, the first under Erkan and the first time she will hold a news conference since her appointment.

"I would strongly expect a clear roadmap, especially when there are increased pressures of further inflation," said Emre Akcakmak, a senior consultant at emerging markets fund manager East Capital.

JPMorgan (NYSE:JPM) raised its inflation outlook for Turkey after the rate hike, now expecting year-end inflation at 57% versus 50% previously.

Meanwhile, new money flows provide much needed relief. Summer tourism will boost hard-currency revenues though investors want to see more details on new loans from the Gulf, after the United Arab Emirates and Turkey inked several deals estimated to be worth $50.7 billion.

"It's still not clear in what shape and timing the country will get the flows, but it will definitely help," said Cagri Kutman, senior fixed income sales at KNG Securities. "That is why people are still giving (the government) the benefit of the doubt."

Investors look beyond Turkey rate hike disappointment, for now
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email