Not everything that glitters is gold. If on the one hand the Istanbul Stock Exchange hit its all-time high and rallied more than 70% year-to-date, ranking as the best stock exchange of 2022, on the other inflation Turkey accelerates its run in August exceeding 80% (to 80,2%) for the first time since September 1998. The heavy devaluation of the Turkish lira which is now trading at $0,055, down 55% year-over-year against the dollar, and 27% year-to-date. And that makes it the worst performer in emerging markets.
Erdogan: the (questionable) monetary policy
This means that the strategy of the Turkish president Recep Tayyip Erdogan that interest rate cuts will be able to curb the steep drop in the Turkish lira and the inflationary spiral is not actually working. The monetary policy path undertaken by Ankara in the last 8 months goes in the opposite direction compared to the global tendency of the other central banks to raise interest rates in order to fight inflation. The Central Bank of Turkey, on the other hand, is counting on macroprudential and collateral measures such as increasing risk weights and doubling reserve requirements at banks for lira-denominated loans to ease lending.
Turkey has the most negative rates in the world
If the ECB is preparing to raise short-term rates, the Central Bank of Turkey (CBRT) surprisingly cut interest rates by 100 basis points, last August 19, to 13% from 14% at which they had been unchanged since 16 December despite the fact that the cost of living was already at its highest in the last 24 years. A strategy that makes Turkey the country with the most negative real rates in the world.
The series of records of the BIST 100 index of Borsa Istanbul continues
L'Bist 100 index of the Istanbul Stock Exchange, on Monday, September 5, 2022, accumulates an increase of 3,44%, so from a year ago it still maintains an increase of 136,54% and more than 75 above its minimum valuation of the year in course (1.851,38 points). This is thanks to financial stocks with investors using stocks as a hedge for rising prices and falling lira. Because if the skyrocketing inflation and the weak currency drove investors out of the market for a long time, it was then the rush to invest by the Turks themselves that reversed the situation of their own listings, as Bloomberg explains. The index has more than doubled in the last year (it was at 1.454), having risen more than 100 times from its 1988 value (about 33).
Although consumer price inflation rose to levels last seen during a period of political instability before Erdogan in power, Turkey's growth outpaced most other countries in 2022, with a gross domestic product up 7,6% annually in the second quarter of the year.
