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Hawkish CBRT, De-Dollarization Aiding Slower Pace of TRY Depreciation

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A more-hawkish central bank, de-dollarization and a sustained shift to a more conventional policy set are among the factors contributing to the slower path of TRY depreciation seen over the past month:
  • In addition to continued hawkish communication from central bank officials, efforts to encourage savings in TRY (rather than in FX-protected accounts) have accelerated in recent weeks, with latest regulation increasing the interest rate paid on required reserves on TRY accounts relative to KKM accounts.
  • Comments from Simsek seem to have verbally re-assured markets that inflation will come down quickly in the summer months (though CBRT commentary acknowledges the improvement will largely be on the back of base-effects).
  • The shift towards more conventional monetary and financial policies has been acknowledged by ratings agencies, with an upgrade to Turkey’s ‘B’ rating by S&P potentially on the cards on Friday.
  • Goldman Sachs note that they remain OW in TRY as much of the weakness in EM FX has stemmed from higher core rates which TRY should exhibit low correlation to.
  • The CBRT’s net FX position (net foreign assets excluding FX swaps) improved by $12bn in April on the back of de-dollarization among Turkish residents and foreign inflows after the March municipal elections. JP Morgan say they expect the CBRT to continue to rebuild its FX reserves thanks to de-dollarization, foreign portfolio inflows, and increased seasonal tourism revenues in the coming months.
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A more-hawkish central bank, de-dollarization and a sustained shift to a more conventional policy set are among the factors contributing to the slower path of TRY depreciation seen over the past month:
  • In addition to continued hawkish communication from central bank officials, efforts to encourage savings in TRY (rather than in FX-protected accounts) have accelerated in recent weeks, with latest regulation increasing the interest rate paid on required reserves on TRY accounts relative to KKM accounts.
  • Comments from Simsek seem to have verbally re-assured markets that inflation will come down quickly in the summer months (though CBRT commentary acknowledges the improvement will largely be on the back of base-effects).
  • The shift towards more conventional monetary and financial policies has been acknowledged by ratings agencies, with an upgrade to Turkey’s ‘B’ rating by S&P potentially on the cards on Friday.
  • Goldman Sachs note that they remain OW in TRY as much of the weakness in EM FX has stemmed from higher core rates which TRY should exhibit low correlation to.
  • The CBRT’s net FX position (net foreign assets excluding FX swaps) improved by $12bn in April on the back of de-dollarization among Turkish residents and foreign inflows after the March municipal elections. JP Morgan say they expect the CBRT to continue to rebuild its FX reserves thanks to de-dollarization, foreign portfolio inflows, and increased seasonal tourism revenues in the coming months.