1. New CBRT governor Kavcioglu was on the wires a couple of times last week reiterating that there will be no change to the CBRT’s policy stance. At the margin this is positive for TRY, however I expect to see a return to easy monetary policy in the near future.
2. Flow data showed $1.9bn of foreign investor outflows from Turkey in the week of Agbal’s removal, and a $6bn drawdown in local FX deposits. This shows the extent of foreign investor flight and the level of intervention to keep USDTRY capped.
3. Inflation data out Monday morning was very poor, with the…

The replacement of CBRT Governor Agbal indicates a return to easy money policies in Turkey, as is very negative for Turkish asset markets.

1. The replacement of Naci Agbal is the first step in a return to easy money policies in Turkey, which will push USDTRY to new highs.
2. The return of easy money policies in Turkey look to be part of a plan to deliver an AKP victory in early elections.
3. Turkish assets have aggressively sold off this week following the removal of Agbal as CBRT governor.

Interest rate cuts and credit creation policies are coming in Turkey, which will…

I was going to write a normal longform piece, but this headline now overwhelms anything else going on in Turkey. An unbelievably negative bit of news, with new all-time highs in USDTRY to be seen within the next few weeks. This marks a full-fledged return to Erdoganomics, and all the craziness that entails.

Agbal is replaced by former AKP MP Sahap Kavcioglu, who is a professor of banking at Marmara University, and a columnist for the pro-government Yeni Safak newspaper (his articles, in Turkish, can be found here: https://www.yenisafak.com/yazarlar/sahap-kavcioglu). Below are some of his comments on monetary policy:

1. It is…

1. The market is testing the CBRT, as doubts are increasing about the credibility of their hawkish rhetoric. They should hike on Thursday, and if they don’t they will be forced to hike on 15th April.
2. Flows data showed a small reduction in local FX deposits and continued flat flows from foreign investors. The CBRT only has one lever to pull to affect these flows, higher interest rates.
3. On Friday Erdogan announced the Economic Reforms, following on from last week’s Human Rights Action Plan. Both of these were disappointments, with nothing concrete announced.

Market pricing has moved to force the CBRT…

Summary:

1. Another high CPI print with PPI, CPI, and Core CPI all overshooting. The pressure continues to rise on the CBRT to raise rates at their 18th March meeting, with 50bps not enough to assuage market concerns about their credibility.
2. President Erdogan announced the Human Rights Action Plan. As expected, this looks to be more noise than action, with nothing substantive to come of this, and changes to the politicisation of the Turkish judiciary unlikely.

Higher CPI again in Turkey, with CPI at 15.61% vs 15.40% expected, and core also up to 16.21%. …

Summary:

1. There were reports, later confirmed by an AKP member, that Berat Albayrak may be making a comeback to the cabinet in a reshuffle in March, with positions as Energy or Foreign Minister mooted. The market viewed this as a negative, given the economically ruinous policies Mr. Albayrak had pursued during his time as Finance Minister.
2. In a move designed to tighten TRY liquidity, the CBRT increased reserve requirement ratios and reduced the amount of required reserves able to be held as FX or gold via the reserve option mechanism. …

Summary:

1. CBRT left rates unchanged, and the statement is virtually identical to the one after the January meeting. It looks like the CBRT might be on hold for quite a while.
2. Flow data showed that locals had bought $2.2bn of FX and gold last week. This highlights the continued struggle the CBRT have to convince locals to switch savings from FX and gold to TRY.
3. Following the murdered of 13 Turkish hostages last weekend by the PKK in Northern Iraq, Erdogan declared an expansion of Turkish military operations against the Kurdish militant group.
4. The move higher in US Treasury yields…

Summary:

1. Positive data showing that locals had sold $2.1bn of FX and gold last week, bringing the two week sales to $3.2bn. Against this foreign flows were around flat for the fourth week in a row.
2. More statements were made this week regarding the S-400s, as well as the US demanding that Turkey immediately release Osman Kavala. The Biden administration is taking a more forceful stance with Turkey, with any rapprochement requiring Erdogan to step back from some of his demands.
3. The CBRT meet on Thursday, I expect to see a 50–100bps hike as higher than expected inflation prints continue…