September is a crucial month for the economy
This will be a new and critical episode for the markets following the long Eid al-Adha or the “Feast of Sacrifice” holiday.
The development in September will set the course for high interest rates and the United States dollar/Turkish Lira rate that currently stands at 6 liras in the medium-term.
The markets are primarily occupied with the question of whether the measures taken by the Central Bank and Banking Regulation and Supervision Agency (BDDK) aimed at stopping the lira’s decline that started before the holiday will continue and for how long. More precisely, market participants will keep a close eye on the economic management team to see whether it will take more substantial steps to soothe the markets following the announcements of temporary actions.
The most curious question for the markets is whether the Central Bank will increase its rates. That is why the debates around a possible rate hike are likely to dominate this week’s agenda.
In addition to this, the markets will also wait to see whether the temporary measures taken before the holiday aimed at normalizing the markets will be loosened. People do not expect the temporary measures to be eased if interest rates are hiked. But in the event those measures are not loosened and rates are not hiked, market participants will widely talk about the growing panic in the markets and the risks of permanent damages. Because if those temporary measures become permanent, this will determine the sentiment among foreign investors.
Next week will be crucial in clarifying the market’s expectations. Some people argue the markets that open on Aug. 27 will be on wait-and-see mode while others suggest investors will move to react. It would not be wrong to say market players will keep an eye on the signals from the government regarding its moves and will try to understand the course markets will take in the period ahead.
Meanwhile, it is also argued that news from global financial markets will cause sharp moves in the markets unless the path the markets may follow become clearer.
Inflation and MTP
The August inflation data to be announced at the start of next week will be closely watched by the markets and the inflation outlook may affect the reaction of market players.
The Medium Term Program (MTP) that is said to be unveiled in mid-September is also crucial for markets. We can say the markets have high expectations regarding the MTP. High expectations have been created for the program to have a different name and that the economic management team will have a clearer road map with the MTP, which will be a comprehensive program.
Thus, there is a risk the markets will react strongly if it fails to satisfy the players and if it turns out to be an unsatisfactory program. That is why the news flow regarding the MTP and the program itself will be closely followed.
The markets have already priced in a possible rate hike by the United States Federal Reserve (FED) in the upcoming September meeting. From now on, news regarding how many more hikes the FED will deliver will affect the markets.
September is important because it will be the month when the effects of the depreciation of the Turkish Lira last month and the following hike in the market interest rates will be felt. It could be the month when the real sector becomes more unnerved and different sectors will turn to the government for help. The real impact of the currency depreciation is expected to be felt starting from October. For now, expectations seem optimistic. However, September will be the month in which whether these expectations, including a permanent ease in foreign exchange rates or in interest rates, will be satisfied or not.
If some sort of normalization is not achieved, hard times may lie ahead.