U.S. bond giant Pimco maintains its positive looks on Turkish assets after ramping up holdings last year and expects the country's central bank to hold on to a tight policy stance in the near term, a senior executive said.
Pramol Dhawan, managing director and head of emerging markets at Pimco, told Reuters Wednesday that Turkish authorities have taken steps that helped reduce the current account deficit and build foreign reserves.
"We continue to have a constructive stance on Türkiye assets," he said in written comments.
In a policy turnaround beginning in June last year, the central bank has hiked its main interest rate to 50% from 8.5% and pledged again this week to maintain its stance as disinflation begins to take hold.
"Tight monetary policy is expected to continue in the near term given the concerns regarding high inflation," said Dhawan, whose California-based firm oversees some $2 trillion in assets.
Most respondents in a Reuters poll expect policy to remain steady until the fourth quarter, though some predict the bank will not cut rates until next year.
"The policymakers have been trying to improve the transmission mechanism through many macroprudential measures. These policies have started to show their impact on external vulnerabilities: current account deficit declining and the central bank continues to accumulate reserves," Dhawan added.
"Dedollarization has been going on while the policymakers have gradually been reducing FX-protected deposits."
More than a yearlong tightening drive has significantly improved investor sentiment and led to strong demand for Turkish assets, while the central bank has built up its reserves in a record period to historic highs.
The bank accumulated around $80 billion in reserves after the local elections in March. Its net reserves, excluding swaps with commercial lenders, reached approximately $15 billion as of early July. They had hit a record low of minus $65.5 billion before the elections.
In January, Dhawan said Pimco had bought local currency assets in recent months, as part of an initial wave of foreign interest in Türkiye after the policy shift.
Raising its policy rate by a total of 4,150 basis points in a tightening cycle from last June through March, the central bank has held rates steady this week citing the underlying monthly inflation trend "showed a notable decline in June," but pledged it remained highly attentive to inflation risks.
Annual inflation dipped below 72% last month, in what is expected to be the beginning of a sustained slide toward year-end.
