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πΉπ· Turkey: crisis receded but promised to returnβ
π± Turkish politicians celebrate the Pyrrhic victory but are sceptical of the long term. Panic TRY sell-offs have stopped, the currency has partially compensated for the losses, but unreasonable cuts in interest rates, uncontrolled inflation and a dollar-flooded banking system keep the Turkish economy on the brink of a cliff.
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Public confidence in banking system remains, despite devaluation of lira, the staff leapfrog in the
CBRT, and an opaque monetary policy. However, over 70% of private deposits are held in USD, EUR, GBP, as well as in gold and other physical assets. In the current program of saving the economy, it is assumed that citizens will be obliged to keep their savings only in national currency and not to withdraw capital from the country. Further, it is possible to forcibly withdraw USD and EUR from domestic circulation, as well as deprive Turkish banks of access to international dollar markets.
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Banks' replacement rates for current USD debt have dropped below 100%, meaning they are taking out fewer new loans than they already own. Part of the dollar supply is spent on loans to the government and the purchase of Turkish government bonds issued in USD.
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Now banks are forced to provide CBRT dollars in the form of foreign exchange swaps (over $ 60 billion), and the regulator uses these funds for foreign exchange interventions. What do we get as a result? That's right β negative foreign exchange reserves. Situation is very similar to events of the financial crisis in Lebanon in 2020.
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With inflation above 20%, TRY will of course continue to depreciate due to loss of purchasing power, and the government will have to print money to compensate Turkish depositors. This will increase inflationary pressures β and the circle will close.
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There is still little optimism in the market, as well as liquidity. So we are closely monitoring the situation and do not risk in vain.
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Profits to yβall!