Named risks for Russians associated with a sharp increase in the key rate by the Turkish Central Bank

“Holidays in Antalya or Kemer can be ruinous”

By almost doubling the key rate to 15% per annum, the Turkish Central Bank made Ankara’s closest economic partners seriously think about it. This measure concerns Russia in the first place, given the scope and depth of bilateral cooperation. There are many questions. For example, will traditional Turkish imports become more expensive for our country, will Turkey become an unaffordably expensive holiday destination for Russians?

The fact is that the Turkish national currency has never collapsed like this before. Half an hour after the regulator announced its move, the rate updated the historical minimum against the dollar – 24 lira per “American”. That is, something paradoxical, at first glance, happened: instead of getting stronger, the lyre gave a flagrant slack. Observers explain this simply: the markets did not doubt that the Central Bank would raise the rate from 8.5% to 20%, and he limited himself to “half-measure” in his monetary policy (MP). Meanwhile, in May, inflation amounted to 39.59% in annual terms, while the Turkish Central Bank aimed at reaching 5%. Since the beginning of 2023, the Turkish currency has weakened against the US by more than 30%.

Meanwhile, this is the first tightening of the monetary policy since March 2021 and the first decision on the key rate taken by the regulator under the leadership of the new head, Hafize Gaye Erkan. The previous head of the Turkish Central Bank, Kavcioglu, cut the rate under pressure from President Erdogan, despite double-digit inflation. The head of state insisted on easing the monetary policy, believing that low interest rates are the first means of stimulating economic growth and lending. Well, how does the national currency feel there – a trifle that is not worth attention. Apparently, right now there should be a certain turning point in Ankara’s monetary actions: the policy of blind obedience to Erdogan’s will will be ended.

This turning point can have very serious consequences for trade and economic relations between Turkey and Russia, given a lot of circumstances. For example, according to the results of 2022, bilateral trade turnover approached $70 billion, in the autumn the parties agreed to switch to mutual settlements in national currencies, over the past year alone, 1,363 new companies with Russian participation were opened in Turkey, which is 7.7 times more than in 2021 . Finally, the republic has actually turned into a gas hub of the Russian Federation, instead supplying chemical products, textiles and electronics, vegetables and fruits.

“I would refrain from making forecasts now,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – I think the Turkish Central Bank will wait a month and a half, evaluate the medium-term effect of its decision on the rate, and then continue to raise it. Inflation must be suppressed under any circumstances, it is very high. But the situation largely depends on the degree of confidence in the new leadership of the Central Bank on the part of Erdogan, who in past years literally broke financial officials over the knee. As for the consequences for Russia, they are still poorly visible. Let me remind you that the Turkish national currency has been showing increased volatility in recent years. Suppliers on both sides have accumulated some experience in creating insurance mechanisms in case of exchange rate ups and downs.

All these nuances and risks are fixed in advance in export contracts, so we should hardly expect cardinal changes in bilateral trade. Prices for Russian and Turkish consumers will generally remain the same. As for the supply of Russian energy resources to Turkey, they are now actually being carried out on credit: earlier Ankara agreed with Moscow to defer payments for gas in the amount of $600 million until 2024. In what currency – in dollars, lira or rubles – Turkey will make this deferred payment is unknown.

“If we talk about the consequences for Russian tourists, yes, theoretically they can be unpleasant,” says Maslennikov. – There is only one way to protect yourself – to have on hand a certain amount in dollars and other hard currencies, in relation to which the lira is weaker. Otherwise, holidays in resorts such as Antalya or Kemer will be extremely costly, if not ruinous. However, many areas of the Turkish economy, focused on foreigners, tend to tie prices for their services to the dollar. So in reality, there is nothing to be particularly afraid of here. ”

Taking into account the trade and tourism nature of the national economy, the Turkish regulator will certainly use all the tools available to it to ensure price stability. The Central Bank will tighten monetary policy gradually and only as needed, refraining from drastic steps. And it is still difficult to predict how his actions will affect trade with the Russian Federation and how much they will hit the pockets of our tourists, sums up Artem Deev, head of the analytical department at AMarket.