Pavel Bandilov for the new currency - stock quake in Turkey and the reaction of markets to the development of the US-China trade war
With the KTB affair, we’ve learned that a bank is killed with a newspaper. We learned literally, and in the transmission sense. Prime Minister Boyko Borisov himself very much liked the saying, so he continues to use it to this day, significantly expanding the topics to which it relates.
The inflation and exchange rate analogy in Turkey is not very different from our home saga with our political bank. In both cases, the cause of the problems is the lack of trust. Either way, it was attacked by the political class. If the car industry needs oil, the fuel of the financial system is the belief in its stability and functioning.
For several years, President Erdogan has appealed for low interest rates. And in a country that was having difficulties curbing inflation, and the economy is on the verge of overheating. Turkey’s CB Governor Metim Cetinkaia managed to balance investors’ trust and the lack of basic economic knowledge of the Turkish head. A similar martyr role was played by the current Minister of Finance and Deputy Prime Minister Mehmet Simsek.
Simsek was the technocrat in the last government that inspired security in the markets. This role has already been taken away from him and given to Erdogan’s son-in-law, whose name does not have the weight to bear, and there is hardly any room for expression.
In an interview with Bloomberg two months ago, Erdogan said that after the country moved on to a presidential system of government, he plans to take more control of the economy. He also added that although the central bank is independent, it will have to comply with its decisions and will not be able to ignore its signals.
The problem with the Turkish leader is that his opinion is not shared by investors. The markets have given their assessment. Inflation is 15.4% in June, the US dollar’s rate against the Turkish lira is 4.83 to date 12.07.18. It fell on the Istanbul Stock Exchange only yesterday was over 5%. What we have already seen is the presence of a negative trend, the problem is that it increases its rate of decline.
Often, by commenting on stock prices, we use the saying that they go up the stairs, but they go down the elevator. This is because the decline in traded instruments is always stronger as an impulse and develops in a shorter period of time.
This is the lesson the Turkish President has yet to learn, for his comfort the price will pay the taxpayer. As usual!
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