Interest rate diary

LAST WEEK, the agenda of central banks around the world was interest rate decisions. Whether the U.S., which has been increasing interest rates at full speed for about a year, will continue this cycle, and what the size of the increase will be if it continues, has become critical with the bankruptcy of the U.S. and Switzerland-based banks. The Federal Reserve (Fed) continued its cycle with 25 basis points. Fed Chair Powell’s speech and the meeting result text gave the perception that this cycle could end with a final increase in the next meeting. Thus, the response from other central banks was as follows:

► The Fed increased interest rate by 25 basis points

► The European Central Bank made an increase of 50 basis points

► The Bank of England’s interest rate hike was 25 basis points

► The Swiss National Bank ended March with an increase of 50 basis points

► The Monetary Policy Committee of Turkey, on the other hand, did not change the policy rate at its March 23 meeting and kept it at 8.5%

After the Fed decision, Powell’s speech was in a market-friendly tone, but, speaking in the U.S. Senate right after, Secretary of the Treasury Yellen stated that they do not intend to insure all bank deposits. This spoiled the positive mood.

The next day, Yellen changed her tone and said they could take more steps to stabilize the banking sector. They quickly used important instruments to prevent contagion after the bankruptcy of Silicon Valley Bank and Signature Bank, Yellen noted. “We can use these tools again and we are ready to take additional steps, if necessary,” she said, and the stock market indices turned green again.

THE MARCH CONSUMER CONFIDENCE INDEX DOES NOT INCLUDE QUAKE-HIT REGION

Despite the earthquake disaster, Turkish Statistical Institute (TurkStat) announced that the consumer confidence index increased by 4.3% to 82.5 in February. The index preparation rules say that the data are compiled in the first two weeks of each month and calculated and announced in the third week. However, TurkStat’s press release stated something else. “As a significant part of the consumer tendency survey data was compiled before February 6, 2023, the results largely reflect the pre-earthquake situation,” the press release read. Therefore, the consumer confidence index value in February did not fully reflect the real situation.

The March data was announced last week. The index, which was 82.5 in February, decreased to 80.1 in March. However, this time, the statement made by TurkStat said the consumer tendency survey was not conducted in Adiyaman, Gaziantep, Hatay, Kahramanmaras, Kilis, Malatya, and Osmaniye provinces, which were affected by the earthquake disaster. In other words, the data disclosed do not cover the whole of Turkey, it reflects the confidence of consumers in provinces that were not affected by the earthquake.

It is acceptable, how hard it can be for researchers to visit these provinces and conduct a survey on confidence in the economy while people’s homes have been destroyed. But it is also difficult to accept the announced result as correct. (See graph: Consumer confidence index)

The consumer confidence index was 79.1 before the earthquake in January. It rose to 82.5 in February, the month of the earthquake. Although it decreased slightly in March, it is still above its latest value before the earthquake. It is hardly believable.

EXPORTING DRINKING WATER WHILE RESOURCES DEPLETE

World Water Day, which was celebrated in the past few days, once again reminded us that water is becoming more valuable, scarce, and vital. Many countries, including Turkey, are even more dependent on water due to global warming, polluted natural resources, and decreasing precipitation.

Around 1 billion tons of drinking water is traded around the world and its monetary value is around USD 1.3bn annually. The top exporting countries are China, the U.S., France, Norway, and Turkey. The biggest importers are Hong Kong, the U.S., Palestine, the Netherlands, and Belgium. Most of the drinking water trade in terms of quantity and value is carried

out between China and Hong Kong.

Turkey has been selling more and more drinking water abroad in recent years. The amount of water exported at the end of 2022 was 308,000 tons. The income generated in return for this was around USD 50m. The top export countries from Turkey are the UK, Germany, Israel, UAE, and Belgium. Packaged water brands, which we are all familiar with, are exporting to these countries. (See graph: Turkey’s drinking water exports)

I defend free trade to the end, and I find it right to send water abroad to help those who cannot access water. However, I wanted to share with you this issue of water exports, which does not create a serious monetary income. So, I have not been able to make sense of it for years while Turkey is also in serious need of water.

EYT SUPPORT PACKAGE

There was a serious expectation in the business world for convenience to the employer regarding the victims of the delayed pension age (EYT) regulation, which was enacted a while ago. The Treasury-backed EYT Support Package was put into use, albeit lately, by the Credit Guarantee Fund (KGF) last weekend. The total volume of the financial support to be provided was determined as TRY 50bn.

Loans up to TRY 13.3m for SMEs and TRY 28.5m for non-SMEs will be provided within the scope of the package. While the surety rate is determined as 75% for SMEs and 70% for non-SME companies, it will be provided with a 36-month maturity including a maximum 6-month grace period. The interest/profit share rate of the loan to be provided under the EYT Support Package will be applied as TLREF plus 200 basis points for loans with a maturity of up to 24 months. The interest/profit share rate for loans with a maturity of more than 24 months will be TLREF plus 300 basis points.

Payments will be deposited directly into the account of employees, who will retire within the scope of Law No. 7438, by the lender.

A MORE STABLE WEEK AHEAD

This week is expected to be more stable than the previous two weeks. There is no other important development in the economic calendar with confidence indices in Turkey.

The most important foreign data will come on Friday. We will start the day with China’s PMI in the morning, and we will continue with the Eurozone’s core inflation at noon and the U.S. core PCE index in the afternoon.