Turkish economic history is full of reforms adopted by different governments to attract under-the-mattress gold into the main finance system.
Prior to 1980, households held on to gold mostly as an investment instrument. One important factor boosting demand for gold as a safe haven was the lack of alternative financial tools and the absence of a securities market. Over many years, gold-hidden-under-mattresses in the country has turned into a resource that needs to be put to work. Following the depreciation of the lira, state authorities announced a package to support the lira and included gold in the FX-protected Turkish lira deposit scheme and announced an FX-protected gold account programme.
‘5,000 tons of gold into the system’
Treasury and Finance Minister Nureddin Nebati in February announced the new support package, where attracting under-the-mattress gold into the financial system is the main purpose. Nebati said with this package, about 5,000 tons of under-the-mattress gold can be attracted into the economy. According to the new scheme, gold holders will be able to easily and securely transfer their gold savings to the banking system through jewelers or banks. He also said 1500 gold shops- located across each of Turkey’s 81 provinces -were included in the system to facilitate transition to the FX-protected gold account scheme starting 1 March. Holders with gold savings in the form of jewelry will be able to turn in their gold and acquire a proof of ownership.
‘Cheap credits at 10 year terms’
In another effort to revive the economy and give businesses some breathing room President Recep Tayyip Erdoğan in February announced a new credit guarantee fund package worth 60 billion lira ($4,44 billion) which will include both public and private ebanks.
Debate on interest rate still on agenda
President Erdoğan continued to defend his earlier remarks regarding the relationship between interest rates and the inflation rate. Although he recently said discussion about the interest rate had subsided, experts note that without increasing the policy interest rate, the rate policy was effectively left out of the picture. Commentators also note that markets are factoring in the possible more hawkish moves expected from the US Federal Reserve (FED) in March, which will most certainly consider the most recent US inflation data. Many expect at least a 50 base points worth of rate increase from the FED’s March meeting. If the Turkish Central Bank further decreases the rate in March and April, the result will definitely not be positive for the markets, commentators note. The European Central Bank (ECB) has also signaled that it will go for a rate hike in the final quarter, which makes the steps the Turkish Central Bank will take all the more important. Economists say that in 2022, when the world’s central banks will most certainly increase their policy rates, the Central Bank’s insistence on rate cuts is an extremely negative approach in terms of the risks it creates, according to economists.
Impact of war Russia Ukraine war on tourism
Russian forces on 24 Feburary launched a military assault on neighbouring Ukraine, crossing its borders and bombing military targets near big cities. Russia’s incursion marks the start of a volatile process for the markets. One of the most encouraging factors for the economy of Turkey was the expected tourism income from visiting Russian and Ukrainian tourists in the summer. Turkey is among the countries that will be hit worst by the military conflict between Russia and Ukraine, both politically and economically. Both the US and the EU have threatened strict economic and financial sanctions after Russia’s assault. Such a possibility also will undoubtedly affect the tourism income Turkey expects to earn from Russian and Ukrainian tourists. Another dark possibility is that the sanctions could include energy products. Europe imports about 40 percent of its natural gas -about 175 billion cubic meters- from Russia. Any sanctions targeting Russian gas from Europe adds to concerns that the current energy crisis will remain in place in the region. In the most recent development, German Chancellor Olaf Sholz halted the Nord Stream 2 natural gas pipeline.
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