Until a few weeks ago, it seemed likely that Turkey would become one of the most successful emerging markets this year.

Foreign investors, flocking to the country because of the attractiveness of high interest rates, were hoping that the central bank would obstinately curb inflation and that the Turkish lira would gradually improve compared to other currencies.

Consequently, the Turkish economy was expected to wait for a year of strong growth.

But the sudden change of the Turkish Central Bank Governor by order of Recep Tayyip Erdogan on March 20, with the decision being issued in the Official Gazette at midnight Saturday, and the appointment of a person who seems intent on implementing the president’s financial policies, shook the financial markets and changed the scene in the country.

The surprise dismissal has once again highlighted Erdogan’s “unorthodox” view that high interest rates cause inflation.

The lira lost 15 percent of its value against the US dollar immediately after the opening of the financial markets, and the yield on 10-year lira bonds rose by about 5 percent in one day (a new record).

It appears that the investors, who have bought nearly $ 19 billion in assets in Turkey since Naci Agbal were appointed last November, have also decided to leave the country in large numbers.

Thus, it appears that many of Naci Agbal’s efforts during his many months in office to rebuild the credibility of the central bank and boost the level of confidence have been shattered.

Emerging Markets Worst Moments

Charles Robertson of Renaissance Capital, an international investment firm, says foreign investors feel betrayed.

He said in an interview with The Economist:

“What happened in Turkey is one of the worst moments for emerging markets in the last quarter century.”

It was no secret that there were many differences between Erdogan and Naci Agbal, and that Mr. Agbal was under pressure.

There were even rumors that he would be replaced by former Turkish Finance Minister Berat Albayrak. Few, however, expected this quick dismissal.

Accordingly, Robin Brooks says the blow to National Trust is very serious.

According to the chief economist, who works for the Washington-based International Finance Corporation (IIF), “even if he is introduced again as the trusted director of the Turkish central bank, no one knows how long he can remain in office.”

Douglas Winslow, director of the Fitch Ratings Institute, believes that the decision to dismiss Naci Agbal, after only about five months in office, will increase the risks of “implementing a weak monetary policy” in Turkey in the coming months.

What Erdogan will try to avoid will come. That is, increased inflation and increased foreign investment risks.

Two other global rating agencies issued similar warnings after Erdogan fired the country’s central bank governor for the fourth time in two years.

“The clearest consequence of such a decision is that Erdogan’s opposition to high interest rates in the context of his unconventional views will lead to more inflation and damage the long-term credibility of the country’s monetary policy,” Douglas Winslow told Reuters.

Accordingly, the economist expects that the tariffs and other measures that will be implemented in this country from now on will significantly harm Turkish imports.

The successor to Naci Agbal is a man named Sahap Kavcioglu. Who criticized Naci Agbal’s strict policies before.

Kavcioglu intends to implement Erdogan’s policies, and for this reason, in one of his first speeches after his appointment, he repeated Erdogan’s statement that raising interest rates would increase inflation.

This view has been widely opposed by economists.

What’s the solution?

It is possible that the market’s extremely rapid and negative reaction to this change and appointment will make Erdogan think.

In the words of Paul McNamara, investment director at Gam asset management company, Erdogan will finally be convinced that “a country with a lot of external debt does not have the freedom to set Low interest at the rate it wants.”

Paul McNamara points out that Turkey’s short-term foreign debt in January reached 140 billion dollars, which is about a fifth of the country’s gross domestic product.

On this basis, it appears that ultimately there is no choice but for Erdogan and the new head of the country’s central bank to surrender to the markets.

Another way for the government is to require state-owned banks to keep the value of the lira high by selling billions of dollars of foreign exchange reserves, or to prevent foreign exchange from being transferred to foreigners in the short term, thus preventing their capital from leaving the country.

But experts say the effort is ultimately fruitless.

This is because the policy of artificially preserving the value of the lira in this way will exhaust the banks’ foreign exchange reserves in the long run.

All of this is happening in a country full of potential for economic growth.

According to observers, Turkey has managed the Covid-19 Coronavirus epidemic better than most European countries.

As the country’s economy grew by 1.8 percent last year, which is a great achievement for a country that relies heavily on its revenues from the tourism industry that has been destroyed by the Coronavirus.

Before changing the central bank governor, the International Monetary Fund expected Turkey’s growth rate to reach 6% this year, and this figure will undoubtedly need an adjustment in light of recent developments.

The Turkish economy is dynamic and resilient. If Sahap Kavcioglu succeeds in handling the recent developments, we will see the return of the great optimism that was a month ago.

The post Euronews: The future of the Turkish economy after the changes in the central bank appeared first on Move 2 Turkey.

Fitch, the international credit rating agency, announced its growth forecast for 2021 for Turkey, from 3.5% to 6.7%.

A profit growth forecast for 2021 from 3.5 to 6.7% in Turkey was announced, while a growth forecast for 2022 from 4.5 to 4.7% was announced.

According to the “World Economic Outlook” report of the credit rating agency Fitch, it is expected that Turkey will record a growth of 6.7 percent in 2021, and a growth of 4.7 percent in 2022.

In its previous report, published in December 2020, the credit rating agency Fitch stated that the country is expected to grow by 3.5 percent in 2021 and 4.5 percent in 2022.

In the last report, Turkey recorded a growth of 1.8 percent in 2020, according to the agency, which is 0.2 percent higher than previous estimates, and it was noted that Turkey’s economic position has grown with China.

In Fitch’s report, the strong monetary and credit support helped the Turkish economy in 2020, but it stressed that the end of the year caused inflation to rise to 14 percent.

On the other hand, the report mentioned that inflation is expected to reach 11.5 percent by the end of 2021.

It also expressed the possibility of a decrease in the inflation rate in Turkey at the end of 2022 to a level of 9.2 percent.

The credit rating agency Fitch report said global economic growth rose from 5.3 percent to 6.1 percent for 2021.

The report stated that the growth forecast for the US economy for 2021 had increased from 4.5 to 6.2 per cent, and that growth expectations in China for the same year had increased from 8 per cent to 8.4 per cent.

In the credit rating agency report, it was noted that the growth outlook for the Eurozone for 2021 was unchanged and remained stable at 4.7 percent.

The report also mentioned that growth forecasts for 2021 for emerging economies excluding China have increased from 5% to 6.0%.

Brian Coulton, chief economist at Fitch Ratings, whose ratings are included in the report, said:

“The epidemic is not over yet, but it seems that we have entered the final stage of the economic crisis.”

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The international credit rating agency, Fitch Ratings, announced that it expects Turkey’s inflation rate to drop at the end of 2021 to 11%. In addition, it expects it to decline to 9.2% by the end of 2022.

This was stated in the “Turkey and Financial Institutions” webinar held by the international credit rating agency Fitch Ratings.

Speaking at the symposium, Winslow, director of the rating agency, said:

“This year, we expect the inflation rate in Turkey to reach 11 percent, and we expect the decline to be 9.2 percent by the end of 2022.

As the Central Bank of Turkey (CBT) remains above estimate.

Winslow also said, in his evaluation of the steps of Turkish monetary policy, “The new interest rates rose to positive territory by 1.4 percent in February, taking into account the rate of inflation. And that was at the level of -5 percent in June.

Winslow also said that the strong credit stimulus, which increases external imbalances, is expected to decrease.

“Supports our general guess.”

Winslow talked on the financial standards of Turkey, saying: “By comparing Turkey’s GDP with the level of public debt of 40 percent, we notice a reliable financial anchor.”

Winslow also mentioned that the ratio of public debt to GDP for other countries that the credit rating agency has rated “BB” is around 60 per cent.

Winslow noted that the budget deficit of 4.5 percent in 2020 supports our overall projection for 2022, dropping the deficit to 3.9 percent.

“Given the rather strong growth prospects, we do not expect a sharp increase in non-performing loan ratios to banks in 2021,” said Lindsay Liddell, Director of Financial Institutions at Fitch Ratings in Europe, the Middle East and Africa.

Statements by an analyst for Turkey’s credit rating Fitch

On February 19, Fitch Ratings raised Turkey’s credit rating to “BB-“, while confirming that the outlook for the credit rating has shifted to “negative” from “stable”.

Fitch Ratings’ senior director and Turkish analyst, Eric Areby, said in a statement on February 23: The credit rating outlook for Turkey, with the presence of a new economic team, reflects the return of a more consistent monetary policy.

This development has reduced the risks of short-term external financing.

The post Fitch: Turkey will reduce inflation rates in 2021 and 2022 appeared first on Move 2 Turkey.

The Board of Directors of the World Bank Group decided to extend the current partnership program with Turkey for a period of two years to align it with its eleventh development program for Turkey 2019-2023 and its new economic program that outlines long-term structural reforms to be followed in order to address the country’s development challenges.

Auguste Tano Kouame, Country Director for the World Bank, said that Turkey has the opportunity to bring in higher standards of living for all its residents and enhance its role in the global economy.

He added that the Performance and Learning Review (PLR) details how the World Bank Group aims to work with Turkey to help turn this opportunity into reality.

He also added that the World Bank Group: “It will contribute to mobilizing finance, knowledge and global expertise to help Turkey strengthen the institutions necessary to maintain social and economic progress.”

“The Foundation, as the private sector arm of the World Bank Group, will continue to support Turkish financial institutions, companies and projects to enhance the impact on growth, integration and sustainability,” said Arnaud Dupoizat, Country Director of the International Finance Corporation (IFC).

It is noteworthy that international credit rating agencies raised their expectations regarding the growth of the Turkish economy in 2020, from 3.1 percent to 3.9 percent, while expectations for the next year increased from 3.4 percent to 4 percent.

And the agency “Fitch” international credit rating predicted the growth of the Turkish economy by 3.9 percent during 2020, supported by low interest rates and private consumption, as well as a sharp rise in loans provided by private banks.

Douglas Winslow, director of Fitch’s international credit rating agency, said that the Turkish economy will grow by 3.9 percent during 2020, supported by low interest rates and private consumption, as well as a sharp rise in loans from private banks.

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