Cold Turkey
I had written about the state of the Turkish economy three weeks ago. At that time, I had concluded that the signals were mixed. I then used that conclusion to argue that the Central Bank (CBT) would not ease traditionally by cutting the ceiling of its interest corridor. The data that followed indeed did not support easing, and the Central Bank did not loosen policy, either.
But data over the last couple of days have been rather grim, to say the least.
First, while at USD 7.2bn, it came better than expected, the positive surprise in the June trade balance is emanating from the sharp fall in imports.
Since the Turkish growth model is dependent on external financing, as I have mentioned several times, this hints to a slowdown. And the most recent indicators support this: PMI fell below 50 for the first time since March, and the orders subindex was weak as well. Similarly, business channel Cnbc-e’s consumer confidence indices fell:
Coming back to exports, you can read the details in Citi’s note, but one interesting observation was that both gold exports and imports were USD 1.4bn. So no gold boost this month. Don’t be misled by the Hurriyet Daily News article; it is discussing the first half of the year rather than June.
Anyway, more worryingly, the latest Turkish Exports Association preliminary export figures, which predict the official numbers quite well, contracted sharply in July. Bad news for current account adjustment and growth…
So how has the Central Bank responded? It is not easing, but it is easing:) Really… While the ceiling and the one-week repo have not changed, it has been lowering its funding rate:
In fact, the funding rate kind of smooths things out, as it is an average rate. If you look at the interbank overnight repo rate (labeled “weighted average rate” in the graph), you can see that this recent loosening is rather drastic. So all the analysts and econ. columnists were in a pointless debate when they were arguing whether the CBT would ease or not. It was already easing! I can speak with a clear conscience, as I was sooo drawn into this as well 
I don’t know what got into me!…
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