Central Bank sprays water on markets

The Gezi protests continue to affect the markets domestically. The economy administration that tried before to make government agencies sell foreign currency to stop the rise in quotation but could not achieve it, as of yesterday, resorted to the Central Bank’s foreign exchange interventions.

While the dollar rate of exchange neared 1.91, the Central Bank issued a statement about extra monetary tightening. After the statement, just as the markets started to calm down, with the police intervention in Taksim, the dollar rose again. Upon this, the Central Bank issued another statement and said it would start daily foreign currency sales and if needed, would intervene directly in foreign exchange. The Central Bank said the reason for this was “last month’s international and domestic developments.” The bank said extra monetary tightening would essentially be done through open market operations, in other words with the restriction of the Turkish Lira but whenever needed then an intervention in the foreign exchange may be done.

The Central Bank said its daily foreign currency sales would be limited to 50 million dollars. For yesterday’s tender, demand was around 80 million dollars.

Market players believe that the Central Bank was waiting for the market fluctuations that started because of political turmoil to stop; however, because it was uncomfortable with the stage reached, it opted for direct intervention.

Well, if you ask what will happen next, market players are saying that it has been seen that incidents do not stop with the police spaying water on them; likewise, the markets will not calm down with the Central Bank pouring water on them.

Capital exits will be determinative

What will determine whether the exchange rate will settle as a result of the Central Bank’s interventions will be whether or not foreigners stop drawing capital from Turkey.

Market players say domestic players prefer to wait longer and act motionless, whereas on the other hand they say the disruption in the market mostly stems from the behavior of foreigners. For this reason, they argue that whether or not the Central Bank interventions will be successful depends on the attitude of foreigners. What will determine the behavior of foreigners will be political clashes.

For the atmosphere of political clashes to calm down, the environment should be moderated. For this, it was expected that the government would lend an ear to the protests and that the government would act more flexible and with more tolerance on meeting the demands regarding Gezi Park, but on the contrary, Prime Minister Recep Tayyip Erdoğan continued saying that there would not be any tolerance.

The prime minister’s decision to hold two party rallies on the weekend is one that revealed that his stance against these protests would not change; on the contrary, it would toughen.

In short, without the political atmosphere being calmed down and moderated, it is not expected for the attitude of the foreigners to change. As long as this stance continues, it should not be expected, despite the interventions, that the markets will calm down.