Turkish policymakers sought to reassure international investors during a series of meetings in London this week, presenting a unified stance on the steps taken to limit fallout from the war involving Iran and Israel. Participants at the sessions reported that Central Bank Governor Fatih Karahan and Finance Minister Mehmet Simsek conveyed confidence in the authorities' strategy, and suggested that an interest rate rise remains on the table.
Dozens of foreign investors attended the gatherings on Wednesday and Thursday. According to three participants who spoke after the meetings, officials emphasized their commitment to stabilising the foreign-exchange rate and defended the measures already executed to support the lira.
Those measures include halting an easing cycle at 37 percent, raising the overnight rate by roughly 300 basis points toward 40 percent, and deploying tens of billions of dollars of foreign-exchange and gold reserves through sales and swaps. The central bank has said it wants a stable forex rate to limit import-driven inflation and has publicly defended gold-related transactions as part of that effort.
Investors in London repeatedly asked Karahan and Simsek about the potential for further steps if the U.S.-Israeli conflict with Iran persists and keeps pressure on exchange rates. Multiple participants told reporters they left with the impression that a main-rate hike at the April 22 policy meeting is a real possibility, particularly if energy prices remain high.
One investor, speaking on condition of anonymity, said they interpreted the officials' comments as indicating a "base case" of a rate increase on April 22 unless there is a de-escalation in the conflict before that date. That same participant said a material escalation of the war could prompt an earlier tightening.
Not all attendees reached an identical reading. Another fund manager said the officials did not rule out hikes but also did not convey urgency to move immediately. The dominant message, according to that participant, was a determination not to allow the currency to weaken further.
A third participant said the policymakers sought to downplay fears of a larger shock from the war by pointing to the range of measures already implemented, while still leaving open the possibility of a rate increase.
Money market pricing reflects this uncertainty: markets are pricing in roughly a 300 basis point rise in the main rate to about 40 percent this month. Bank of America had predicted such a tightening in a client note published on Wednesday.
Officials in London also referenced recent data showing that disinflation in Turkey has slowed in the past months, a development attributed in part to the country's reliance on energy imports and the recent surge in global energy prices. Annual inflation stood at 30.9 percent in March, according to data released on Friday.
Policy actions have had a marked effect on official reserves. Central bank sales and swaps have reduced total reserves by about $55 billion over the past month and cut gold holdings by nearly 120 tonnes in two weeks, participants said. Those operations are intended to shore up the exchange rate and thereby restrain import inflation that could otherwise feed into domestic price pressures.
Karahan has defended the use of gold in reserve operations and said the central bank will sustain the necessary tight policy stance to keep disinflation on course. A slide presentation delivered by the finance minister to investors this week characterised short-term war effects as negative but manageable.
Foreign investor holdings of Turkish debt have fallen markedly amid the recent market turbulence. Data and bankers' calculations show foreigners sold about $6 billion of Turkish debt over four weeks, reducing their share of total holdings from roughly 10 percent to about 7 percent.
Participants in London described investor sentiment as concerned but not panicked. Several attendees said they expect Karahan and Simsek to act to defend the currency and preserve disinflation prospects, while leaving open additional policy tools including a possible interest rate increase depending on the trajectory of the war and energy prices.
The central bank did not respond to a request for comment.
Bottom line - Turkish authorities presented a steady, defensive stance to international investors, defending recent reserve operations and policy adjustments while keeping the option to raise the main interest rate at the April 22 meeting if geopolitical pressures and elevated energy costs continue to challenge the currency and inflation outlook.