CURRENT MARKET DECISION MAKERS: "CENTRAL BANKS’                                                                                                                                     

Economic life, and in particular, the financial system, pervades our daily lives in the form of the maneuvers of a bicycle driver. When going downhill, the bike rider does not pedal to control the power, and on the contrary, if the ramp is on the roads; the pedal is suspended by the bend, allowing the bike to hold the road. In fact, there is only one word at the core of all this, and in this word:’ balance’.  Economics is based on the science of many graphs that refer to this word.  

On the agenda are the steps of the two central banks regarding the future, which are eagerly awaited by the markets. As a general outlook, both the Central Bank of America ( FED) and the Central Bank of the European Union (ECB) plans to reduce their balance sheets and until the inflation rate in their countries reaches a certain level, and market observations predict that it will end, in particular, by the end of the year in Europe.  According to these signs, although the beginning of this week has been a bit of low pricing in the Euro markets, Euro parity will continue to rise for a certain period of time. The bond purchases have raised interest rates on the 10-year bonds of the countries mentioned. Germany's 10-year bonds, for example, rose from 0.25 percent to 0.57 percent in two weeks.  The emphasis that the monetary expansion in the market will end soon will push interest rates higher in the eurozone, staying in a certain inflation target during the period when tightening will begin.

How should the real sector, based on manufacturing and exports, react to these developments, although the above-mentioned assessment seems to be mainly related to financial markets?

The EU market is the priority export market for Turkey, and many countries show priority in export figures.  Euro/TL parity, which is strengthening, is causing fractures against TL, but it will be formed at a point that can increase Turkey's effectiveness in the EU a market for the export market. In the next one-year export strategy, the EU should be a strong priority.
Not only Euro parity, but also USD/TL parity are priced against TL, and it is stated that input prices will rise, especially if the use of USD for the purchase of raw materials supplied is high. But the proximity to targeted inflation figures in the United States will not keep the USD / TL parity in balance until the end of the year, despite interest rate increases.
Export-oriented manufacturing firms in the export market is considered as USD and the euro zone, general entry, usually facing Europe as’ goods’, considering that trade was carried out; financing of working capital for input costs and interest rates in Turkey due to the height of the rise will be punched through the snow.  Allowing accredited types, such as inter-bank back-to-back financing transactions, will at least meet the need for working capital and facilitate the supply of raw materials.
Euro and USD pairs will rise for a certain period of time, and after the tightening process, interest rates will be high overall in both the EU and the United States. Since there will be no monetary expansion in existing countries, a strong demand mechanism may not be formed, as in the current situation.
The EU Central Bank wants to keep the euro at a strong level, while Turkey should take advantage of the current situation for a certain economic growth performance. Unfortunately, strong growth and the desire to lower interest rates will further fuel the rise of inflation in Turkey.  In particular, as developed countries adopt an interest rate hike policy, the interest rate cut in the TL brings a departure from inflation targets, but further pressures the value of the TL and domestic demand growth momentum is strong for Turkey, which may experience a contraction in domestic demand.
          FERHAT TOMO