​Heads Up: Anything can happen this week, but probably nothing will

TURKEY - In Brief 19 Dec 2021 by Atilla Yesilada

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On Friday, the main Turkish stock index collapsed suddenly, triggering two trading halts, as anecdotal evidence emerged of increased cash withdrawals from banks. It is difficult to imagine Turkish financial markets finding an equilibrium level this week, as first economy czar Mr. Nurettin Nebati, and then his master President Erdogan firmly shut the door to any rate hikes. Erdogan’s Sunday night speech was very important in my view, as he ruled out other drastic actions, as explained below. Yet, it is not only the turmoil in financial markets which may force Erdogan change his mind regarding “action”. Exchange rate uncertainty is severely impairing economic activity, jeopardizing Erdogan’s populist incomes policy. Our team has received inquiries from our audience about press or financial institutions’ reports regarding deposit runs. I personally had conversations with three bankers, who confirmed a heavier-than-usual pace of cash withdrawals from branches. I’m also told that state banks are now closely scrutinizing how business cash balances are deployed. EFT’s to other banks, cash withdrawals of loan balances and requests to convert these balances into FX are denied or delayed. I speculate that the horrifying crash in the Istanbul Stock Exchange is related to that news flow.Resident investors may fear currency controls, or similar attempts to restrict financial activities, running for the exit. If you ask my opinion, Turkey is in very early stages of a deposit run. It can certainly start in a few weeks, if Erdogan continues to harp on interest rates as Islamic heresy, while the TL dives deeper into bottomless depths. Erdogan may firmly believe given enough time his un...