Try: the flows return, but the lyre is still weak – Commerzbank

The latest data on the balance of payments in Turkey shows that the capital entrance was recovered in May after suffering a strong fall during the tumultuous political period of March-April (after the arrest of the mayor of Istanbul). However, the lyre has continued to depreciate: the USD/Try recently exceeded the 40.0 mark, says Tatha Ghose, a commerzbank FX analyst.

The risk factors for inflation and monetary policy have not disappeared

“There is a superficial explanation and there is a deeper explanation. The superficial explanation is that a part of the recovery at the entrance of portfolios during May was the increase in external indebtedness (Turkey once again issued primary sovereign debt with a bond issuance of 2,000 million dollars after the markets calmed down). And if the government asks more borrowed from abroad, that is not a reason for the exchange rate. The simple explanation of why the lyre was not appreciated.

“Not all the recovery of May was primary issuance, however, the flow of the banking sector also recovered. Even so, in regards to the flows, the broader argument is applied: the entries that represent indebtedness and create a corresponding obligation are not reason to boost the exchange rate. Only in isolated cases, we can see ‘flow’ of the secondary market as a sign that the feeling of investors has changed towards a certain Active, but that’s all to summarize some other key data: the current account trend improved slightly in May.

“What about the deepest explanation of the weakness of the lyre? In our opinion, the persistent weakness of the lyre is better understood as the decomposition of an overvaluation accumulated in previous years with the help of a strong intervention in currencies and controls of soft capital. The current policy framework wants to spend less resources on such purposes and wants In nominal terms. Crucially, risk factors related to inflation and monetary policy have not disappeared. “