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Difficult to Gauge Impact of Easing Macroprudential Measures, Commerzbank Say

TURKEY
  • Regarding the tweak to macroprudential measures over the weekend, Commerzbank write that at this point, it is difficult to comment specifically on the implications of minute policy change details because, while liraization measures obviously distorted/impacted market behaviour at the day-to-day level, they hardly thought of them as effective capital controls.
  • From an international trade partner’s point of view, the policy surrounding forced conversion of exporters’ FX earnings would be a more interesting topic, they say. Banks had to abide by strict limits, and easing those limits will likely mean that they will immediately make use of larger permitted long-FX positions.
  • The hypothesis that this will not happen – that instead, net foreign capital will flow into Turkish assets – because of the “confidence fairy” can only be tested in the medium-term, Commerzbank say, and that too only if it looks like real, irreversible reforms are being implemented.
  • President Erdogan’s unilateral powers in this regard, his ability to reverse these new initiatives at any time he chooses, combined with his demonstrated lack of patience with conventional policy, stands in the way of the confidence. Meanwhile, the lira is adding to the inflation rate of future months at an alarming rate.
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