Global markets had been holding their breath to hear the next statement of the US Federal Reserve regarding a possible rate hike, when the Federal Reserve chair, Janet Yellen, finally made a statement on the issue
Some members of the Fed Board of Governors had been speaking of a rate hike in April, but Yellen stepped in on March 29, in a radically “dovish” manner, sending a wave of relief to global markets. Yellen urged caution, saying she expects “only gradual increases” to be warranted in the future. There is now even the expectation that no hikes will occur this year. This has led the dollar to slide against most other currencies, particularly those of developing economies, and dollar purchases have started to increase in most stock exchanges.
Rate could go down to TL 2.80-2.75
Following Yellen’s statement, the dollar posted a sharp decrease in less than 24 hours, falling from TL 2.87 to below TL 2.83. The situation has been similar in other developing economies which have also made gains from the dollar’s slide. As analysts expect the dollar to loosen further, many bank reports now place their estimates for the exchange rate at TL 2.80 – 2.75. Borsa Istanbul soared to 83,000 points while the euro – dollar parity rate rose to 1.13, after the Fed Chair’s statement. Economists say the picture that came into being after Yellen’s statement is an “opportunity not to be missed” for developing economies. This is because Yellen’s statements, in view of the European Central Bank’s (ECB) quantitative easing policies, indicate that the Fed will also contribute to attempts to revive the global economy. But what did Yellen exactly mean? Speaking to The Economic Club of New York, she said that it is appropriate to proceed with caution in moving policy, and that economic and financial conditions are somewhat less favorable than in December when the Fed raised interest rates for the first time in nine years. Yellen’s statement clearly indicated that she is a “dove,” and it has been so comforting for global stocks that many now speak of the possibility of the Fed not going for a rate hike until the end of 2016. Yellen’s remark that the Fed might employ previously used monetary instruments if need be made the tone of her statement even more dovish. Her speech has sent global markets into a risk-taking mood. HSBC Turkey’s Treasury Director Fatih Keresteci in a recent report noted that “nobody was expecting Yellen to make such a dovish statement.”
Potential effect on Turkey
But how will these developments affect Turkey? Experts say, as we have experienced over the past few months, the course of global risk appetite is a major determining element for Turkish financial markets. Regardless of what might be going on domestically, if global risk appetite is well, Turkey’s financial markets stay optimistic; a finding that has been tested many times in the near past. Experts also note that the view at home is not too negative either. Economic indicators also confirm this outlook. The current account deficit on a cumulative 12-month basis has narrowed to below $30 billion; the growth rate is also doing well and the expected GDP growth for 2015 is around 4 percent. Turkey’s budgetary dynamics are also positive enough to make some large economies of the world jealous. Add the consumer inflation rate that is expected to fall to 7 percent this year to this encouraging macroeconomic data, and it is not hard to see why Turkish financial markets are in a good mood.
