Prudent optimism

Dünya Executive - - COMMENTARY - Tugrul BELLI Columnist

While the release of pastor Andrew Brunson is of primary importance, president Trump’s more positive tweets on Turkey also increase the likelihood of a thaw in U.S.-Turkey relations. In any case, the possibilit­y of the U.S. expanding sanctions on Turkey, which is the market’s biggest fear and the most important element in downward pressure on the lira, appears to have been completely eliminated.

The contractio­n in both lira and foreign currency loans has become more evident in recent weeks. In this period, when inflation reached 25 percent, it is not a good sign that the lira loan volume has declined in nominal terms.

Production data and unemployme­nt figures for August, capacity utilizatio­n rates for September, and confidence and PMI indices all indicate a greater contractio­n than expected in the economy.

Thus far syndicatio­n renewals have been overcome without real problems, and there will be no serious threat after that.

In August there was a record current account surplus of $2.6 billion.

Although the current account surplus is due to a decline in imports rather than an increase in exports, it is a positive developmen­t that a current account surplus has been achieved at all, particular­ly ni terms of ensuring foreign exchange balances.

Then there is the U.S. side of the incident. Recent data suggest there may be some slowdown in U.S. growth. However the sales waves generated by interest rate increases, especially in the EMs, may have an impact on U.S. exports at some point. Trump, on the other hand, publicly criticizes the Fed’s interest rate policy. Under these circumstan­ces, it is more likely that the Fed will extend its interest rate hike over a longer term. In light of the developmen­ts listed above, I think that the tightening in both fiscal and monetary policy should not be further increased. It ought to be sufficient to maintain the current interest rate until the headline is in peak inflation. I don’t expect a rate hike in next week’s monetary policy meeting.

On the fiscal policy side, it is hard to call the medium-term program an austretiy package. For this reason, it may be sufficient to stay within the program objectives, especially on the expenditur­es side. Exceeding the targets, however, would be a negative developmen­t in terms of both inflation and national savings.

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