The Fed dilemma in the fund crisis

The CMB has decided to liquidate 130 funds. As of Monday, September 14, Turkish capital markets were shaken by the most serious fund-based liquidity crunch in their history, with a volume exceeding 940 billion liras. Regulatory institutions took action following a Financial Stability Committee meeting held on Wednesday morning, September 16, chaired by Minister of Treasury and Finance Mehmet Şimşek. The CMB decided to liquidate 130 funds, including equity-based free funds and money market funds. According to Reuters' calculations based on TEFAS data, the size of these funds was over 940 billion liras as of Monday, September 14. The decision shows that the "shadow liquidity" problem that the market has been accumulating for years is now being addressed.

Shock-Absorbing Moves from the CBRT

On Wednesday, September 16, the CBRT took comprehensive steps to prevent the crunch from spilling over into the banking sector. It was announced that the weekly repo volume would be increased, and a 300 billion TL repo auction was held on the same day. It was announced that collateral discount rates would be reduced; a direct purchase auction of 7 billion TL was opened for five bonds, two of which are TLREF-indexed. These moves provided a breather to the market by absorbing the selling pressure created by the fund liquidations.

The impact was immediate: The BIST 100, which closed at 13,122 points with a 5.54 percent drop on Tuesday, September 15, and experienced its sharpest loss since May by falling to 12,817 during the day, rose by over 2 percent on Wednesday, September 16, led by banking stocks. The increase in the banking index exceeded 6 percent.

The Fed's Hawkish Message Increased Pressure

Turkey's struggle on the domestic front was tested simultaneously by the Fed's hawkish tone on the global side. The US Federal Reserve (Fed) raised its policy rate by 25 basis points to the 3.75-4.00 percent range on Tuesday evening, September 15. This is the Fed's first rate hike since 2023. The decision was taken unanimously by 12 members; however, what really shook the markets was the messages that came after the decision rather than the decision itself. In the Fed's updated projections, the policy rate expectation for the end of 2026 was raised from 3.8 percent to 4.1 percent. Sixteen out of eighteen members foresee at least one more rate hike within the year. Chairman Kevin Warsh emphasized determination by saying, "Inflation is too high and has been at this level for too long." The market read this picture as encountering a much more hawkish path than expected, despite receiving the hike it anticipated.

The first reflections were harsh on Tuesday evening, September 15, and Wednesday morning, September 16. Gold per ounce, which was at the 4,353 dollar level before the decision, fell to 4,243 dollars after Warsh's statements. The dollar index rose above 100, seeing its highest level since the end of July. While the US 2-year bond yield rose to the 4.71-4.72 percent band, the 10-year yield stabilized around 4.99 percent; the yield curve flattened. On Wall Street, the S&P 500 fell 0.44 percent and the Dow Jones lost 1.21 percent in value on Tuesday, September 15. The Fed's message was clear: the work in the fight against inflation was not yet finished.

Institutional Solution in Savings Financing

It is seen that the fund crisis is not limited to the liquidity dimension, and there is a need for structural intervention on the savings financing front. On Wednesday, September 16, Türkiye Emlak Katılım Bankası notified the Public Disclosure Platform (KAP) that it had started negotiations to acquire Katılımevim and Birevim through its subsidiary Emlak Katılım Tasarruf Finansman. This step shows that the intervention of the economic administration is no longer limited to providing liquidity to funds and liquidating distressed portfolios; it is shaped as an institutional solution aimed at preventing a possible loss of confidence in savings financing companies from spreading to household savings.

Central Banks and Oil

The Bank of England kept interest rates steady at 3.75 percent on Wednesday, September 16, but the decision was taken with a 6-to-3 vote; Governor Andrew Bailey signaled that tightening might be necessary for the rest of the year. The Bank of Japan, on the other hand, raised rates by 25 basis points to 1.25 percent as expected on the same day; however, the fact that the decision was taken with two dissenting votes created selling pressure on the yen.

Oil prices tested below 102 dollars on Wednesday, September 16, with Saudi Arabia's statements that it would continue shipments via alternative routes and that the damaged pipeline could be repaired earlier than expected. The easing of supply disruption concerns slightly reduced worries regarding energy-driven inflationary pressure.

The Week's Balance Sheet and Monday Expectations

The past week witnessed a breathtaking struggle for Turkish markets. The fund crisis, which broke out on Monday, September 14, with a volume of 940 billion liras, was attempted to be balanced in the middle of the week with the CMB's decision to liquidate 130 funds and the liquidity support that came with the CBRT's 300 billion TL repo auction. The BIST 100 recovered by over 2 percent, led by banking stocks, following the sharp 5.54 percent drop on Tuesday, September 15.

However, the hawkish messages announced by the Fed on Tuesday evening, September 15, remain the biggest external risk to this recovery. The dollar index's course above 100 and the US 2-year bond yield settling in the 4.71-4.72 percent band continue to suppress capital flows toward emerging markets. Next Monday, eyes will be on whether the effects of the CBRT's liquidity management are permanent and whether the BIST 100 can hold above 13,500 points. The steps taken domestically are in the right direction; however, if the global wind continues to blow against us, this breather may be short-lived. The new week will test the sustainability of Turkey's struggle against the fund crisis.