Emerging Insight: Postcard from Istanbul: Falling oil prices revive easing expectations

Research evidence excerpt

Emerging Insight: Postcard from Istanbul: Falling oil prices revive easing expectations

Reserves expected to stabilize over the summer months

The near-term outlook on inflation and the current account balance (favourable

seasonality in tourism revenues in particular) are expected to support the carry-trade and

tactical trade opportunities in TURKGBS and equities, paving the way for some reserve

accumulation by CBRT over the summer months.

Rising domestic political uncertainty had initially led to foreign sell-off amounting to

$12bn net FX sales (according to our calculations) in the immediate aftermath of May 21

court ruling, but since then dollarization - the main indicator that foreign investors are

watching before adding to their positions- has remained limited, especially among local

retail investors. Corporates’ FX demand has also remained contained and recently

subsided according to local banks. CBRT has used NDFs effectively since early March to

meet corporates’ hedging demand, with the NDF stock currently standing at $8.5bn as

of June 19. Given recent news flow suggesting that elections are unlikely for at least

another year, with some government figures pointing to even April 2028 as the date for

early elections, and no visible sign of any election economics, dollarization risks are

expected to be contained.

The CBRT’s net FX position excluding swaps and gold valuation effects, have risen

around $18bn month-to-date in June (post Eid holiday), accelerating in the week of June

15 following the announcement of a draft memorandum of understanding between US

and Iran. Before the news of a deal (as of June 12), foreign positioning has been light,

around $25bn in carry-trade according to our guesstimates and $13.6bn in foreign

ownership of TURKGBs.