The financial markets have been focused on the Central Bank of the Republic of Turkey’s (TCMB) interest rate decision on July 20th.
After raising the policy rate by 650 basis points below expectations in the June meeting, there is anticipation regarding what decision the bank will make on July 20th.
Nick Eisinger, the Head of Emerging Markets Fixed Income at Vanguard Group, one of the leading asset management and investment advisory firms, stated that the Central Bank of the Republic of Turkey’s (TCMB) interest rate hikes have been positive, but the markets are looking for further rate increases.
Speaking to Ekonomim newspaper, Nick Eisinger mentioned that their expectation is for gradual interest rate increases. He also stated that positive real interest rates and a more dynamic yield curve could make Turkey attractive for investment once again.
Eisinger emphasized the importance of reforms and liberalization of the local capital markets, in addition to policy rates, to attract foreign capital and investors. He highlighted the need for stronger willingness for normalization and reform, not only for the capital markets but also for other direct investors and businesses interested in returning or investing in Turkey.
■ It has been approximately one month since the new economic management took office. During this period, the Central Bank increased interest rates, raising the policy rate from 8.5% to 15%. Do you think this interest rate increase was sufficient?
It is positive that the Central Bank has started raising interest rates, but the markets are looking for further rate increases. This is necessary for the policy rate to move out of sharp negative territory. Our perception is that the rate increases will occur gradually.
■ How much more interest rate increases do you expect for the remainder of the year? Do you have any forecasts about where the policy rate might go and what the final level could be?
We do not have a specific prediction, but transitioning to positive real interest rates and having a more dynamic local yield curve could position Turkey as a very attractive investment destination.
■ Is raising interest rates enough for foreign capital to return to Turkey? Are there any other steps you expect from the government and the new economic management?
In addition to interest rates, there should be some changes in existing regulations and the liberalization of local capital markets. We believe that a strong willingness for further normalization and reform is crucial. This is not only important for the capital markets but also necessary for other direct investors and businesses interested in returning or investing in Turkey.
TL could appreciate over time
Do you have any exchange rate expectations for the end of the year, or any forecasts for key economic indicators? In general, we believe that interest rate hikes and a weaker exchange rate are necessary conditions for a return to local markets and bonds in Turkey. Considering how inadequate international investors’ investments have been in Turkey for a long time, these reforms imply that the Turkish Lira could actually appreciate over time.