Dollar exceeds 27 lira again

As the dollar/TL continues its limited rise, climbing above the 27 level, interest rate decisions from the Central Bank (TCMB) as well as the US, UK, and Japan will stand out in the market this week.

The dollar/TL had fallen below the 27 level following the Central Bank's 750 basis point interest rate hike on August 24. After a 25-day break, the 27 level was exceeded again in the exchange rate today.

The Treasury will conduct a reopening of seven-year variable-rate bonds and 10-year benchmark bonds today.

Having borrowed approximately 50 billion TL through three auctions held last week, the Treasury is planning 110 billion TL in domestic borrowing for September. The September domestic borrowing program will be completed with two auctions to be held tomorrow.

The dollar/TL has been following a slightly upward horizontal trend after the sharp rises in June and July following the elections. Since June, when control over the exchange rate was loosened, the depreciation of the TL has been around 23 percent. The exchange rate started the day this morning at around 27.0150.

President Recep Tayyip Erdoğan is in New York, USA, to attend the United Nations General Assembly. Meetings with international investors alongside the economic management team will also be closely followed this week.

EYES ON INTEREST RATE DECISIONS

This week, major central banks, including the US Federal Reserve (Fed), as well as many central banks from emerging countries, will hold monetary policy meetings.

Markets, which have priced in that the Fed will keep its policy rate unchanged, will focus on updated forecasts to be announced regarding the economy and interest rates, as well as statements by Fed Chair Jerome Powell.

Following Erdoğan's support for tight monetary policy, the Central Bank (TCMB) is expected to continue its gradual interest rate hikes by raising the one-week repo rate by 500 basis points to 30 percent.

While all 16 economists participating in the Reuters survey expect an increase in the policy rate, which is currently at 25 percent, forecasts range between 27.5 percent and 31 percent.

With the new economic management established after the elections in which Erdoğan maintained his power, past policies are being gradually abandoned, and a strategy expected to be accepted by international investors has begun to be implemented.

The new TCMB management, led by Hafize Gaye Erkan, has raised the policy rate by 16.5 points since the elections. According to analysts, how patient Erdoğan will be in the face of high inflation despite the interest rate hikes is one of the issues to be watched.

According to the Reuters survey, the TCMB is expected to continue interest rate hikes in the coming months. The median of the year-end 2023 interest rate forecasts in the survey is at 35 percent. Forecasts range between 30 percent and 40 percent. The TCMB will announce its interest rate decision on Thursday, September 21, at 14:00. The US interest rate decision will be announced on Wednesday, and the UK and Japan decisions on Thursday.

NEW DECISION ON KKM

The impact of the TCMB's reserve requirement step last week regarding the currency-protected deposit (KKM) scheme is also being monitored in the markets.

The TCMB raised the reserve requirement ratio applied to KKM accounts with maturities of up to 6 months from 15 percent to 25 percent. Bankers, whose calculations Reuters consulted, estimate that nearly 300 billion TL of TL liquidity will be withdrawn from the system.

Following the TCMB's setting of targets for banks to reduce the size of KKM last month, the maximum interest rate offered for deposits has recorded an increase of more than 10 points.

The economic management is pursuing a selective credit approach that increases investment, employment, production, and exports. In this context, costs are being increased and accessibility is being reduced for individual loans such as housing and vehicle loans. Expansionary steps are being taken for loans focused on exports and employment.

According to BRSA data, the size of KKM recorded a weekly decline for the third consecutive time as of September 8, albeit limited, at 15.7 billion lira. The size of KKM had fallen by 20 billion lira as of September 1. KKM peaked at 3.41 trillion lira on August 18 and had fallen by approximately 40 billion lira on August 25.