On market volatility and CBRT actions: some preliminary reactions

TURKEY - In Brief 20 Mar 2025 by Murat Ucer

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After yesterday’s carnage in Turkish markets that reportedly led to some $10-$15 billion loss in reserves by some counts (driven mostly by foreign investor outflows, we hear), the CBRT has taken a number of actions today, which included raising the O/N lending rate by 200 bps to 46% from 44% previously, this evening (and thus widening the O/N corridor upwards without changing the policy rate and borrowing rate), while re-introducing TL-settled foreign exchange forward selling transactions during the day (links here and here). We do not know exactly how much CBRT’s reserves dropped yesterday (March 19), on which we shall have some estimate tomorrow afternoon (March 21), when the March 20th data is published. Our understanding is that the drain had slowed or stopped today. Today’s actions by the CBRT should also help at the margin, though it is for sure too soon to think we are out of the woods. The critical thing, perhaps needless to say, will be to see whether this episode will prove temporary or permanent, which we will need to monitor in the coming days from CBRT reserve data as well as, anecdotally, from, among other things, local depositor behavior. We remain of the view that the CBRT could ward off further attacks from foreign investors without changing its policy direction too radically, i.e., sticking to the exchange rate rule and continuing with the easing cycle (albeit at smaller clips), but a local depositor panic would be a different matter (should the former begin to spill over to the latter), to which the Bank would have to respond, politics permitting, by hiking the policy rate a 'la March 2024. At the moment, we think this episode is more likely to prove...