Nordea Markets analyst Morten Lund is listing the reasons why the crisis in Turkey is now over.
“Turkey is currently in a recession. Thus, the ultra-high interest rates have led to a credit crunch with classic real economy indicators such as the housing market, car sales and retail sales deteriorating. Furthermore, the spike in non-performing loans during the autumn is still surrounded by some question marks.”
“Although the central bank today pointed out that its primary objective is price stability, it remains a latent risk that the CBRT could start to ease monetary policy too early.”
“Both domestic and geopolitical risks lure with respectively the upcoming local election on March 31 as well as Erdogan’s warning last week to Trump about Israeli sovereignty.”
“The USD is still strong. This is especially bad for the corporate sector, which has a high share of USD-denominated debt.”
“FX reserves dropped in March and with the adequacy ratio already well below IMF’s recommendation (around 30%-points too low), this limits the central banks’ tools to intervene in the currency market.”
“Recent PMIs from Turkey’s biggest export destination, Germany, indicate a sluggish momentum in the industrial sector and maybe a recession ahead.”
“The 10Y-3M US Treasury Yield curve inverted last week, being another driver behind the current risk-off environment. An inversion of the more closely watched 10Y-2Y spread could soon follow and if history is any guidance, then the TRY will be shot to pieces.”