| 13 June 2024, Thursday |

After Turkey’s giant rate hike, foreign investors mull return

Turkey’s last huge interest rate rise has piqued the curiosity of long-skeptical international investors, who think they may return to Turkish assets if authorities continue to demonstrate a return to traditional monetary policy.

The lira rose as much as 7% on Thursday as the central bank surprised the market by raising its benchmark rate by 750 basis points to 25%, which was three times the predicted increase.

Turkey’s senior authorities say they aim to take two more critical measures to reverse a years-long outflow of foreign investment: they will publish a detailed economic blueprint next month to alleviate uncertainty, and they will begin arranging talks with international investors.

Finance Minister Mehmet Simsek will kick off the investor roadshow on Sept. 19 at Goldman Sachs headquarters in New York, Reuters reported on Friday.

Though the tide may be shifting, persuading investors will not be easy: Foreigners had all but abandoned Turkey over the last five years of President Tayyip Erdogan’s unorthodox and often erratic policies, which included slashing interest rates in the face of soaring inflation.

Yet five foreign investors told Reuters that this week’s rate hike signaled a new independence among policymakers who are serious about addressing unrelenting pressure on the currency and reining in inflation expectations.

“It feels like they are correcting the mistakes they made with their first rate hike decisions,” said Viktor Szabo, portfolio manager at abrdn in London. “And it is a sign that the pressure continued on the currency.”

Ola El-Shawarby, deputy portfolio manager for Emerging Markets Equity Strategy at Van Eck, said: “We have some exposure and we are getting more comfortable with the overall picture so we are getting more constructive.”

“The more proof we get of the return to orthodoxy the more likely we are to revisit these investments,” she said.

  • Reuters