Turkey’s periodic currency, ‘Lira’ , collapsed with 9% this month.
The debt market looks similar as it was last seen in 2008 during the global crash.
However, President Tayyip Erdogan’s government can avoid market babel because, after five months, it is implied that re – election may happen.
After the elections, the foreign investment may stand again if he (Tayyip Erdogan) loses the elections.
The plunge
The last plunge in Lira marked 20% down this year which is combined with flying global energy and price rise in food.
However, during the increase in prices, inflation has risen to 70% and is still rising.
Although, Ankara has adopted at the height of last year’s turmoil which are about to be seriously tested.
Likewise, Authorities managed to avoid a frisky implosion in December by selling currency keeps.
They created special bank accounts for protecting savers and corporates from more lira falls in an effort to discourage hoarding of U.S. dollars and euros or gold.
These accounts, known as KKM, can decline as critical summer ‘rollover’ dates approach.
However, the central bank’s net reserves have plummeted to negative $55 billion once FX exchange deals with Turkey’s domestic banks are accounted for.
Abrdn fund manager Kieran Curtis stated that, ‘Turkey is not a dead certainty for a big crisis but the odds of one are a long, long way from zero.
‘They are at risk of losing control of the situation’, added Curtis.
However, the central bank claims that inflation will cool by year end.
But, still the price of sky high energy, food along with Lira’s drop and 50% domestic lending growth have driven inflation rate in three digit figures now.
Though, the Central bank hasn’t touched the interest rate and kept it to 14%.
However, Erdogan’s government targeted the fallout in the Ukraine war.
It delayed the efforts to balance the current account with a combination of credit, exports and targeted investments.
Investors concern
Top western banks fear the further fall in Turkey’s Lira for investments.
However, the investors are highly focused on whether the individuals and companies will stick with the FX-protected KKM accounts.
The Turkish bank doesn’t showcase the data however, Calculations of four Turkish economists who ran the sums for Reuters show about $10 billion worth of deposits are up for release in July and another $20 billion in August.
It is essential to keep the depositors interest in these schemes amid this drastic fall in market, says JPMorgan’s Zafar Nazim.
Daniel Moreno commented that, ‘I don’t think it is sustainable.
You cannot just offer anyone a payout to protect against currency weakness’ who is the head of emerging markets debt at Mirabaud.
The Elections
Amid Turkey’s periodic currency fall, few international investors remain big holders of Turkey’s bonds in recent years.
The Market situated has worsened the misery for ordinary citizens of Turkey.
Many households are struggling to pay for food, big shot tax bills for their settlement in Turkey.
However, the elections are due in June 2023.
The citizens have witnessed many problems under the leadership of Erdogan’s government and hence surveys suggest that he can lose this parliamentary election and perhaps even the presidency to the opposition party.
Foreign investors claim that Erdogan’s exit would flash a confident signal by raising the prospect of a return to more orthodox economic policies.
