Markets also affected by earthquake, say analysts

Gamze Şener - ISTANBUL

The earthquakes in Kahramanmaraş and Hatay have also affected the markets, experts say, adding that every issue from public finances to the budget deficit and inflation should be addressed from the very beginning.

“The effects of the earthquake are now setting the agenda,” market experts say, adding that inflation expectations may change due to the expansion in public finances.

The interest rate decision of the Central Bank expected on Feb. 22 will be a key local indicator to watch. Some experts argue that the bank will cut the interest rate by 100 basis points to 8 percent, while others argue that it will avoid making a decision and keep the policy rate constant in the panic atmosphere following the earthquakes.

Atılım Murat from TOBB ETÜ University stated that the country has entered the earthquake economy with the public expenditures that will increase in the coming period following the disaster.

“After the earthquake, everything has changed a lot; inflation, budget deficit, unemployment will be talked about all over again,” he said.

“Fiscal discipline will deteriorate due to the earthquake economy because the budget deficit will increase. We will see that taxes will be increased along with increased public expenditures.”

Economist Ferhat Yükseltürk said that he expected Central Bank to cut interest rates by 100 basis points.

“I do not think the rate cut will have an impact on deposit rates. It may have a limited positive impact on the banking index, but I do not expect it to be permanent,” he said, adding that inflation expectations will continue to be revised upwards and inflation may rise to 55-60 percent due to the expansion in public finances.

Piotr Matys, an analyst at IN Touch Capital Markets, stated that they expect the Central Bank to cut interest rates.

“Even before the earthquakes, which caused so much destruction, the Central Bank had hinted before that the easing cycle would be resumed by May,” he said.

“The earthquakes are likely to push forward interest rate cuts. The expectation is for a 100-basis point cut to 8 percent. However, according to some opinions, [Central Bank Gov.] Şahap Kavcıoğlu is not convinced to cut interest rates at the next meeting.”

Evaluating the Fed’s upcoming interest rate decision, Yükseltürk said that the last two weeks saw sales in risky assets and strengthening in the dollar index.

“The Fed will most likely continue to raise interest rates,” he said. “We can also see that the strengthening in the dollar continues. The risk of slipping below 1 in the euro-dollar parity is still high. Selling pressure will also continue in stock markets.”

Inveo Portfolio Fund Management Manager Eral Karayazıcı predicted that gold price will rise with a moderate positive trend throughout the year.

“When inflation expectations rise, this is accompanied by a rise in bond yields, and metals are negatively affected and lose value,” he said.

“I am of the opinion that the Fed rate hike from 4.75 percent to 5.25 percent has been priced in, and for the decline in gold to continue, market actors should expect a total increase of more than 50 basis points from the Fed. I think global inflation and bond yields will continue to fall in 2023, albeit with delays.”