Turkey: Foreign portfolio exit continues

According to the weekly data of the Central Bank of the Republic of Turkey, total foreign currency deposits decreased by 1.01 billion in the week of May 27, adjusted for the parity effect. Compared to the previous week, foreign currency deposits of real persons decreased by 751 million dollars, while foreign currency deposits of legal entities decreased by 262 million dollars.

In the week of May 27, FX deposits of domestic residents increased by 204 million dollars to 214.7 billion dollars on an unadjusted basis. Non-residents continued to sell their assets in Turkey. According to the data of the Central Bank of the Republic of Turkey (CBRT), foreign investors made a net sale of 41 million dollars on the stock side and 55 million dollars on the bond side during the week of May 27. Thus, production since the beginning of the year has reached 4.3 billion dollars. CBRT reserves recovered last week. Gross reserves increased from $100.3 billion to $102.9 billion. Net reserves rose to $12.2 billion. Net reserves excluding swaps were also negative $52.4 billion.

Most of the exit from the BIST in recent weeks is due to the Garanti Bank volunteer call. Although the main partner is foreign, the shares received through voluntary call are calculated as outbound since they are kept in domestic clearing. With the global risk aversion, external outflow may continue in the coming weeks, albeit limited.

Despite the increasing inflation, it is seen that the current monetary policy will not change at least for a while. In the upcoming period, the possibility of TRY weakening in the options market has strengthened. Options traders are pricing in a 75% probability that the dollar/TRY will reach a record high again in September. This probability was priced at 40% at the beginning of May. Dollar/TRY reached a record level of 18.3633 in December. With the CBRT signaling that there will be no change in monetary policy, the losses in the lira accelerated since the beginning of May. The lira was the worst performing emerging market currency, down 19% since the start of the year.

At the current level, we will continue to follow the trends in the FX-linked product focused on dollarization, reserve cumulation and financial stability. In addition, although a breakdown of FX and TRY accounts has not been published, we consider this distinction as 55% conversion from FX to TRY and 45% direct TRY account opening in line with the statements of the Ministry of Treasury and Finance. The financial dollarization rate is at the level of 56.66% as of the week of May 27, an increase is observed from the rate that was 55.42% in the previous week. This rate was 55.3% in the same period of the previous year.

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