Neither the FED rate hike, nor its hawkish attitude or its plan to reduce the balance sheet have been able to stop the increase in financial asset prices
It wasn’t that long ago that if the FED signalled that it was going to up the rate — let alone actually increasing it — the markets would be majorly upset. But now, the party goes on after the first day’s rather weak negative reaction. Neither the investigation into US President Donald Trump nor the unexpected election results in the UK can hurt the calm of the markets. For this situation, what has been described by former Federal Reserve Board Chairman Alan Greenspan as “irrational exuberance,” analysts offer two observations: Firstly, over the short term markets might continue to stay strong despite the negative developments. Secondly, a large bubble will likely form in the markets over the medium and long terms, and it makes sense to prepare for this. This optimism in global financial markets is exactly reflected in the mood in Turkey. Borsa Istanbul has hit 100,000 points in spite of all the big threats of the very recent period.
According to the experts, the high rate or earnings offered by the lira turns the currency into one of the most attractive instruments for investors in those moments when risk appetite is alive. Experts say the value increase in the lira occurring in the hours when the Turkish markets are closed shows that the interest shown is mainly from abroad. The fact that the foreign currency deposits held by expatriates has reached record levels also proves this point. According to experts, the dollar will remain in the 3.4750-3.5580 interval for another while based on these indicators. Economists however, also note that Turkey is faced with a stark dilemma in macroeconomic terms: In order to recover the massive loss of value in the lira that occured earlier on in the year, a harsh hike was introduced to interest rates. Although this is great support for the lira, it also runs the risk of causing damage to the financials of companies.
Experts note that investing has low feasibility in an environment where that the monthly deposit rate is 14-15 percent; the borrowing rate for the most competitive companies between 15-16 percent, and up to 20 percent for Small and Medium Scale Enterprises (SMEs). This environment, experts say, negatively affects Turkey’s economic potential, adding that although up until now this situation doesn’t seem to have affected growth figures, it should not be forgotten that recent growth figures were supported by financial policies. Economists, who say that Turkey has been able to post a good growth figure with the support of tax reductions and incentives, note that this growth is mostly based on consumption and the fact that there hasn’t been much of a movement in terms of investments is a risky situation over the long term.
