HSBC:  Political risk, currency challenge

Istanbul mayor Ekrem Imamoglu was detained on 19 March, adding to the political uncertainty Türkiye faces and potentially complicating the challenge for macro policymakers.   Istanbul mayor Mr Ekrem Imamoglu was detained on 19 March, further complicating an already uncertain political outlook. Turkish assets responded negatively, with USD-TRY rising sharply prior to an intervention by state banks which amounted to USD8-9bn, according to a Bloomberg report. Türkiye has scope to weather the shock. CBRT net foreign assets (after excluding all swap borrowing) have grown by roughly USD130bn from their March 2024 lows to stand at more than USD55bn as of 17 March. Gross FX reserves stand at USD98bn  and the central bank is well-placed to meet any FX demand that might arise from onshore or offshore. Turkish banks’ swap position vis-à-vis offshore counterparts, a proxy for carry-trade related inflows, stood at more than USD30bn at the end of February. Inflows into domestic debt, meanwhile, have reached nearly USD20bn over the past year. But the key focus for policymakers will be onshore demand for FX. [embed]https://www.youtube.com/watch?v=8qnXs2jOFCo&t=52s[/embed]   Significant and/or rapid dollarisation of deposits would obviously pose a challenge to the CBRT, which sees real TRY appreciation as a key driver of the disinflation process. FX deposits had already risen slightly, by USD7.3bn since the start of the year, prior to today’s events. For investors, the most relevant big-picture question is likely to be what the recent developments might mean for the economic stabilisation programme policymakers have been implementing successfully since June 2023. For now, while there is no evidence that this programme is facing political constraints, investors will be keeping a close eye on fresh developments. The next round of parliamentary and presidential elections are scheduled for May 2028, but there is a possibility that Türkiye might hold early elections or a public referendum on the adoption of a new constitution. [embed]https://www.youtube.com/watch?v=S4B9-dbQDRI&t=4s[/embed]   IMPORTANT DİSCLOSURE:  PA Turkey intends to inform Turkey watchers with diverse views and opinions.  Articles in our website may not necessarily represent the view of our editorial board or count as endorsement.     Follow our  English language YouTube videos  @ REAL TURKEY:   https://www.youtube.com/channel/UCKpFJB4GFiNkhmpVZQ_d9Rg And content at Twitter: @AtillaEng Facebook:  Real Turkey Channel:   https://www.facebook.com/realturkeychannel/