Turkey Central Bank under new leadership as of a week and a half ago follows through with a 450bp rate hike, top end of expectations.
Lira rallies on the headline +2.3%, after having already rallied 12% since last Mon following a tumultuous leadership change at both Turkey central bank head & finance minister (erdogan son in law), the former was fired after a year and a half of slashing rates from 25% to 8.25% then hiking rates once to 10%, and the latter resigned his post as fin min citing health concerns via Instagram (Seriously).. Erdogan makes an economic policy speech last Wed in a tone shift to seemingly allow for rate hikes, which previously referred to as “the devil.”
Foreign investors flooded into Turkey last week. The lira outpaced even BTC for much of the week, and is still keeping pace. Turkey 5yr CDS drops 200bps. BIST100 index has its best week since 2009. TUR- ishares Turkey ETF is up 23% since last mon.
However the real reason for a flow into Turkish assets was the authorities who loosened the limits on dollar swaps imposed by the recently departed fin min- a move that originally intended to prevent foreigners from shorting the lira in the ‘18 lira crisis, but ended up squeezing foreign capital out of Turkish assets instead. Now foreign flows are back.
Meanwhile CBRT continues to burn through FX reserves and continues to sell its gold holdings after becoming the worlds largest buyer of gold YTD (and... (More)