Turkish Deputy PM warns of cash exit, eyes on Fed

ISTANBUL

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Turkish Deputy Prime Minister Mehmet Şimşek has warned some $300 billion non-reserve cash may exit from emerging markets, as all eyes are on a key U.S. Federal Reserve (Fed) decision next week.

“The direction of the capital has already turned backwards due to the stance of the Fed and the developments there,” Şimşek said, speaking at a meeting of the Turkish Institutional Investment Managers’ Association (TKYD) in Istanbul to mark the portfolio management sector in Turkey reaching 100 billion Turkish Liras in volume. 

The liquidity in the markets will narrow due to the normalization in global monetary policies, Şimşek said, adding that many developed countries had printed money to avoid the crisis, some of which fled to developing economies, and such an era was now over. 

Meanwhile, many global investors moved to the sidelines before next week’s meeting, where the Fed is expected to raise U.S. interest rates. 

While financial markets have already priced in a rate hike, it is the trajectory of U.S. interest rates communicated by Fed chair Janet Yellen that investors will watch, amid uncertainty about growth in China and globally. 

Federal funds futures contracts have implied an 80 percent chance the Fed will end seven years of near-zero interest rates at its December meeting and about even odds of a second rate rise by March. 

Long-dated U.S. Treasury debt prices held firm after rallying Dec. 7, as the drop in oil prices pointed to benign inflation, potentially tempering the Fed’s policy-tightening path after the expected lift-off on Dec. 16. 

“It will be hard for the Fed to achieve their goal of 2 percent inflation. People have said the fall in oil prices should boost consumption but that just hasn’t happened,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. 

The 10-year U.S. debt yield fell to 2.216 percent, off a one-month high of 2.358 percent touched on Dec. 4, following strong U.S. employment data.

Current account forecast 

There has been a narrowing in Turkey’s current account deficit, said Şimşek, forecasting the figure at around 4.7 percent of the national income by the end of the year. 

“This is a figure better than our forecast,” he said, projecting that the percentage will fall further toward 4 percent despite a ”shock” from the Russian sanctions which emerged after the downing of a Russian jet for reportedly violating Turkish airspace. 

The minister also said it was crucial to tax rent from real estate in the upcoming period.