Nobody knows when exactly, but the day will eventually come when the U.S. Federal Reserve (Fed) will nudge its benchmark lending rate from next to zero to something slightly higher. For now, it seems to be benefitting Turkey. The Fed decided to be patient, but Fed Chair Janet Yellen has changed her tone and instead of saying that the Fed will be patient, she underscored the need for patience.
After the Fed's announcement, the Borsa Istanbul BIST-100 index was up at the close of the first session yesterday. The benchmark index increased 1,974.95 points to close at 81,917.22. Stocks gained 2.47 percent in value and the total trading volume was TL 2.7 billion ($1 billion). The Turkish Lira rallied against the Dollar Thursday. The Lira was holding at about 2.57 to the Dollar Thursday, down from levels close to 2.64 earlier this week.
Economy Minister Nihat Zeybekci said yesterday that the expectations of the Fed's decision to increase interest rates affected the Turkish economy in a negative way, but the European Central Bank's quantitative easing program and rate cutting are neutralizing the negative concerns and turning them positive.
Yellen said at a press conference late on Wednesday in Washington that there would be no interest rate rise in the U.S. in April, and that the one projected for June might also be delayed. Ziraat Securities' economist Bora Tamer Yılmaz said in a note yesterday that the rate rise might not come before September, and that this was good for the Lira and Turkish stocks. "Diminishing dollar concerns may provide a boost for Turkish assets," Yılmaz said.
The Lira has lost more than 10 percent of its value against the dollar since January, as worries about the Fed raising interest rates soured investor sentiment. Timothy Ash, an emerging markets analyst at Standard Bank, told Anadolu Agency that the dovish statement from the Fed was the preferred outcome for emerging market currencies, as a more hawkish tone could have spurred capital flows out of emerging markets.
The Fed changed its language on interest rates in its statement released before Yellen's speech. The removal of the word "patient" from the statement was a signal, noted by Yellen previously in testimony before Congress on Feb. 24, that a rate increase would be on the Fed's agenda within two months. But Yellen was careful to temper this indication in her speech: "Removing the word 'patient' does not mean we will be impatient" to raise rates, she said.
Meanwhile, the U.S. Dollar Index, which measures the strength of the Dollar against six other major currencies, also dropped to 96.75 from 99.68 after the Fed's decision was made public. It was at about 98.5 on Thursday.
Separately, the Central Bank of the Republic of Turkey left all key interest rates unchanged on Tuesday, one day before the Fed's statement. The one-week repo rate stayed at 7.5 percent and the overnight lending rate remained at 10.75 percent.
The Central Bank said in a statement Tuesday: "The ongoing cautious monetary policy along with prudent fiscal and macro-prudential policies are having a favorable impact on inflation, especially inflation excluding energy and food [core inflation indicators, excluding energy and food products]. But uncertainty in global markets and elevated food prices necessitates maintaining a cautious stance in monetary policy. Accordingly, the committee decided to keep interest rates at current levels."
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