CGTN Europe interviewed Timothy Ash, Economist at BlueBay Asset Management
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00:00Turkey's Central Bank has announced a raft of new measures to prop up the markets and
00:05the Turkish Lira amidst the ongoing uncertainty. Let's get more on that now with Timothy Ash,
00:11economist at Blue Bay Asset Management. Timothy, thank you very much for joining us. This comes
00:15after a meeting with commercial lenders on Sunday and includes a ban on short selling.
00:20Will it be enough?
00:21Well, it's one of many measures, as you've mentioned. I mean, the positive for the Central
00:28Bank is, you know, they came into this crisis with a real wad of foreign exchange reserves,
00:34about 160 billion dollars gross reserves. That's a lot of ammunition to defend the currency.
00:41Also today, interestingly, Erdogan came out with strong supportive words for Simsek, that's
00:46the finance minister, and the team at the Central Bank. And they have, I think, a mandate
00:52to do whatever it takes to stabilise the currency and stabilise markets. That could mean raising
00:56interest rates. The benchmark rate has been reduced in recent months, but we could see
01:02that increased in defence of the currency.
01:04Well, let's maybe talk about interest rates in a moment. What impact do you think that
01:08the political unrest continuing will have on foreign direct investment?
01:13Well, there's two things here. There's foreign portfolio investments, which is foreigners
01:19buying stocks and bonds. And then, as you mentioned, foreign direct investment, that's
01:22companies, you know, building factories in the country, in Turkey. We've seen portfolio
01:29inflows return to Turkey over the years, not to the record levels we saw a decade or more
01:36ago, but kind of significant levels and probably around 50 billion dollars worth. Significant
01:41amounts have left in the last week, frightened by this move. But the Central Bank has used
01:47reserves to cushion the outflow. Now, if we see some kind of normalisation on the politics
01:54front or demonstrations moderate, and if we see the Central Bank do the orthodox things
02:00in terms of raising rates, et cetera, that money could come back quite easily, I think.
02:06The more difficult one is foreign direct investment. People, when they build factories in countries,
02:11they're more concerned about rule of law, long term political stability. And I guess
02:15that's been hurt by the end. So I think foreign direct investment, I think, will further slow.
02:21Actually, interestingly, the peak of FDI, foreign direct investment, was, I think, in
02:26about 30 billion dollars a year. And it's been down to around five billion recently.
02:32And that's probably going to go lower as a result.
02:36And where do you think this does leave interest rates? And is President Erdogan
02:39willing to risk another economic crisis for political reasons?
02:46Well, it depends what you mean by economic crisis. A currency crisis, which results in
02:53high inflation. I think he doesn't want that. I mean, I think if you look at the results of the
02:59last year's local election, it was really about inflation. I mean, the ruling party,
03:04the AKP, got a drubbing across the country because people were fed up of high inflation.
03:09And I think what he learned from that was that he needs to address those inflation problems.
03:15And he appointed a team, Shimshek and the guys at the Central Bank, to address those
03:20issues. They raised rates. We've seen some progress in terms of reducing inflation.
03:25It's been on the right track. Obviously, this has put that effort out of kilter a bit.
03:30But I think, you know, policies that, you know, a failure to address the challenges,
03:38the market challenges in the short term, if they resulted in a big FX adjustment
03:43and high inflation, I think that would be terminal to Erdogan's re-election chances anyway.
03:48So he can't really let the currency go. He's got to continue to support the orthodox
03:52monetary policy run by Shimshek and the team at the Central Bank. He has really no option.
03:57Great to get your insights today. Thank you very much indeed,
03:59Timothy Ash, economist at Blue Bay Asset Management.