Major selloffs were experienced in all developing markets, and emerging market currencies dropped significantly against the dollar. Interest rates started to climb. Turkey was most certainly one of the countries highly affected by the turbulence. The interest rate surged to 8 percent from 4.67 percent. The turbulence subsided a bit after a while, but economists say there is no going back to interest and exchange rate levels Turkey has been used to for some time. The result will be changes in economic balances, which are already happening, analysts say.
Commercial lending rates are also expected to increase in the period ahead. Bankers estimate that commercial lending rates — which were around 7-7.5 percent until the latest turbulence — will stabilize at around 9 percent. In other words, Turkish companies will find it costlier to secure financing in comparison with a month ago.
Analysts say it is likely that banks will seek renewal of guarantees in light of recent developments, another likely move that will create further trouble for companies. Increasing interest rates around the globe and less liquidity also might also put the government’s mega projects such as a new airport in İstanbul and a third bridge over the Bosporus at risk. Bankers say interest rates have risen by 0.50-0.60 points in project financing loans, saying that a possible burning of bridges between Turkey and the EU or a downgrading from a credit rating agency might cause serious problems in project financing. Although the increase in the exchange rate is likely to have a positive effect for Turkish exporters, even this sector might be in trouble over the long term, given that it is always a possibility that FED policies might further upset European and other markets.
Open currency positions
The toll the rapid rise in the exchange rate took on Turkish companies’ financial statements has also been high. The rate stood at TL 1.78 in early May but soared to TL 1.94 causing a TL20.7 billion increase in open currency reserves. According to Central Bank data, net foreign currency open position of Turkish companies not including the finance sector stood at $145.9 billion as of March.
