Turkey Country Report Aug22 - August, 2022

August 5, 2022

Economically, August will be a ‘hot’ month as per usual. The USD/TRY pair may crash again. On July 27, the Fed’s open market committee delivered another 75bp rate hike in line with expectations.

​​The USD/TRY is testing the 18-level, up 112% y/y. Turkey’s five-year credit default swaps (CDS) saw 908 on July 15. The yield on the Turkish government’s 10-year eurobonds remains above the 11%-level.

Lira loan rates have risen over macroprudential measures and non-capital controls. The fresh loans flow is also slowing down, but the government is once more too late to the game.

The EUR/USD tested below parity. Turkish exporters are grimacing again. Turkey buys inputs in USD and sells to the EU in EUR. Turkey’s exporters simply produce a wider trade deficit. If exports were banned, Turkey’s trade deficit would fall.

Fitch Ratings downgraded Turkey’s sovereign rating by one notch to B with a Negative outlook. Corporate downgrades followed as per usual.

Following the change, Fitch Ratings rates Turkey at B/Negative, five notches below investment grade. Moody’s Rating Services rates Turkey at B2/Negative, five notches below investment grade. Standard & Poor’s has Turkey at B+/Negative, four notches below investment grade.

More downgrades are on the way.

Fitch forecasts official annual inflation in Turkey will average 71% in 2022, the highest inflation level of Fitch-rated sovereigns. The ratings firm said Turkey's inflation trajectory remained highly uncertain due to increased risks of backward indexation, rising expectations and additional lira depreciation, as the exchange rate pass-through has increased in both speed and magnitude.

Fitch expects Turkey’s overall policy mix to remain overly accommodative at least until the 2023 elections that must take place by June at the latest.

There is a risk that in the event of weaker depositor confidence or a deterioration in the until-now resilient access of banks and corporates to external financing, official international reserves would come under pressure, as a significant portion of banks' foreign currency assets are held in the central bank, according to Fitch.

Fitch: Garanti’s subordinated eurobond non-call signals broader market pressure. Turkey’s insurance industry is under severe strain.

Turkey is in a wage-price spiral.

Q2 financials season at Borsa Istanbul. Deadlines: August 9 for unconsolidated, August 18 for consolidated.

Austria extradited Sezgin Baran Korkmaz (SBK) to the US.

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