The stock market and foreign exchange puzzle continues: Here are the 2 widely discussed scenarios! That possibility is off the table

The detention and subsequent arrest of Istanbul Metropolitan Municipality (IMM) Mayor Ekrem İmamoğlu last week triggered volatility in financial markets. Following the arrest decision, all eyes turned to the first trading day of the week, and the markets were severely shaken.

STOCK MARKET FELL SHARPLY, TL LOST VALUE

Throughout last week, the exchange rate trended upward. The Dollar/TL rate drew attention by rising 3.11 percent in three days. In Borsa İstanbul, the BIST 100 index faced sharp sell-offs and lost a total of 16.3 percent in value. The selling trend among investors also reflected on government bonds, which saw significant sell-offs. Turkey's risk premium (CDS) rose to 330 basis points, reaching its highest level in the last year.

The Central Bank intervened in the market to limit the depreciation of the Turkish lira. However, due to excess liquidity in the markets, it is predicted that the impact of the steps taken will remain limited.

INTEREST RATE CUT IS OFF THE TABLE

Economists state that these developments could also affect the Central Bank's interest rate policy. It is stated that the possibility of a potential interest rate cut, which was previously on the agenda for the April 17 Monetary Policy Committee meeting, has been shelved due to the fragility in the markets.

In addition, the increase in domestic investors' demand for foreign currency stands out as another risk factor for economic management. It is also rumored that the foreign bond issuance planned by the Ministry of Treasury and Finance for March may be postponed due to current market conditions.

TWO DIFFERENT ROADMAPS FOR THE STOCK MARKET

Experts evaluate the course the markets will follow in the coming period through two different scenarios:

Optimistic scenario:

If a trustee is not appointed to replace İmamoğlu, it is predicted that the selling pressure in the markets could stop at some point. Although losses in the stock market and the TL continue, it is stated that if a trustee decision is not made, the loss of investor confidence could remain limited. However, the arrest of a prominent opposition figure could still trigger a tendency among domestic investors to turn to foreign currency.

Pessimistic scenario:

If a trustee is appointed to replace İmamoğlu and new investigations are launched alongside it, the probability of deepening losses in the markets is high. In this case, it is stated that the demand for foreign currency could increase rapidly and the economic management might be forced to implement measures such as foreign exchange restrictions. Furthermore, the possibility of the limited number of foreign investors still in the market exiting could further disrupt financial balance.

WILL THE HOLIDAY BREAK RELIEVE THE MARKETS?

During this period when tension in the markets is rising, the approaching Ramadan Feast (Eid al-Fitr) may provide a short-term relief. Markets will be closed due to the holiday between March 31 and April 1. Experts state that this closure will give the markets a chance to catch their breath in the short term.

Minister of Treasury and Finance Mehmet Şimşek worked intensively with the economic management following the developments. According to information provided by Bekir Gürdamar from Bloomberg HT, Şimşek met with representatives of economic institutions throughout the day yesterday.

Representatives from the Central Bank, the Capital Markets Board (SPK), the Banking Regulation and Supervision Agency (BDDK), the Turkey Wealth Fund, Borsa İstanbul, and public banks attended the meeting held in the evening. The steps to be taken in the markets were discussed at the meeting.

ERDOĞAN CONVENES THE CABINET

Today, at the Cabinet meeting to be chaired by President Recep Tayyip Erdoğan, Şimşek is expected to make a comprehensive presentation regarding the measures taken concerning the economy.