The Fed did not change the policy rate as expected, leaving it in the range of 5.25-5.50 percent, the highest level in 22 years. The signal that there may be another interest rate increase for the rest of the year caused a negative trend in global markets.
Release: 09:12 – 21 September 2023 Updated:
While a negative trend was observed in the global markets as the US Federal Reserve (Fed) signaled that it may increase interest rates for the rest of the year, although it kept the policy rate constant in line with expectations, today all eyes in the country are on the interest rate decision of the Central Bank of the Republic of Turkey (CBRT). .
The Fed did not change the policy rate as expected, leaving it in the range of 5.25-5.50 percent, the highest level in 22 years.
Making statements after the decision, Fed President Jerome Powell stated that they were ready to increase interest rates further if appropriate, and that they intended to keep monetary policies at a restrictive level until they are sure that inflation is sustainably decreasing towards the target.
ANOTHER INTEREST INCREASE SIGNAL
Stating that their decision to keep the policy rate constant at this meeting does not mean that they have reached the desired stance in monetary policy, Powell stated that most of the Federal Open Market Committee (FOMC) members predicted that it would be appropriate to increase interest rates once again in the remaining 2 meetings this year.
Powell emphasized that a “soft landing” in the economy is their primary goal and noted that they have been trying to achieve this all this time.
In the “dot plot” chart, which includes the Fed’s economic projections and members’ expectations regarding the policy rate, published after yesterday’s meeting, the forecast for the federal funds rate remained at 5.6 percent for the end of this year, signaling another interest rate increase.
The Fed’s forecast for the federal funds rate for 2024 was increased from 4.6 percent to 5.1 percent and for 2025 from 3.4 percent to 3.9 percent. The Fed’s interest rate forecast for 2026 was 2.9 percent. The long-term average interest rate expectation was kept at 2.5 percent.
The Bank’s inflation forecasts were increased from 3.2 percent to 3.3 percent for this year, maintained at 2.5 percent for 2024, and increased from 2.1 percent to 2.2 percent for 2025. Inflation forecast was 2 percent for 2026.
Analysts said that signals were given in the projection that the Fed will keep interest rates at high levels for longer than expected.
Following these developments, 2-year US treasury bond yields, one of the indicators most sensitive to the Fed’s moves, rose to their highest level since July 2006.
Yesterday in the New York Stock Exchange, the S&P 500 index lost 0.96 percent, the Nasdaq index lost 1.53 percent and the Dow Jones index lost 0.22 percent. Index futures contracts in the USA started the new day with a negative trend.
POSITIVE COURSE IN EUROPEAN STOCK EXCHANGES
While there was a positive trend in European stock markets yesterday, today investors focused on the interest rate decision of the Bank of England (BoE).
Analysts said that, according to data released in England yesterday, expectations that the BoE will increase interest rates have decreased in the money markets after the unexpected slowdown in inflation.
Inflation in the UK slowed down on an annual basis in August, reaching 6.7 percent. While the Consumer Price Index (CPI) increased by 6.8 percent on an annual basis in the previous month, the markets’ expectation was that there would be a 7 percent increase this month.
After inflation in the UK remained below expectations, the probability of the BoE increasing the policy rate by 25 basis points today decreased from 80 percent to 40 percent in the pricing in the money markets.
Analysts reported that they think the BoE is now approaching the end of this cycle, even if it raises its policy rate.
Yesterday, the FTSE 100 index in England increased by 0.93 percent, the CAC 40 index in France increased by 0.67 percent, the MIB 30 index in Italy increased by 1.64 and the DAX 40 index in Germany increased by 0.75 percent. Index futures contracts in Europe started the new day with a negative trend.
The falling risk appetite following Powell’s “hawkish” tone guidance also carried over to Asian markets. Analysts stated that concerns have increased that the Fed will keep interest rates at higher levels for longer than expected, and that the risk appetite in global equity markets has decreased.
LATEST SITUATION IN ASIA
Analysts pointed out that while the dollar gained value against other important currencies yesterday, it followed a horizontal course against the Japanese yen, and said that the Bank of Japan (BoJ) continued to intervene.
Near the close, the Nikkei 225 index in Japan decreased by 1.2 percent, the Kospi index in South Korea decreased by 1.6 percent, the Hang Seng index in Hong Kong decreased by 1.3 percent, and the Shanghai composite index in China decreased by 0.6 percent.
DOLLAR/TL IS TRADING AT 27.04
While the BIST 100 index at Borsa Istanbul, which followed a sell-off trend yesterday, closed the day at 7,719.82 points with a 0.82 percent depreciation in the domestic market, today all eyes are on the CBRT’s interest rate decision.
Economists participating in AA Finance’s expectation survey estimate that the CBRT policy rate will be increased by 500 basis points to 30 percent. According to the survey results, the policy rate expectations of economists who predicted an increase of 250 to 600 basis points were between 27.50 percent and 31 percent, and the year-end policy rate expectations were between 35 and 45 percent.
After following a horizontal course yesterday and closing the day at 27.0278, Dollar/TL is traded at 27.0420 at the opening of the interbank market today.
On the other hand, yesterday the Capital Markets Board (CMB) approved the capital increase of 5 companies. The Board approved the free capital increase application of Kalekim Chemicals for 345 million liras, Mercan Kimya Sanayi ve Ticaret for 127 million liras, and Çimsa Çimento for 810.5 million liras.
The private capital increase application of İzmir Fırça Sanayi ve Ticaret AŞ and Kuvva Gıda Ticaret ve Sanayi Yatırımları AŞ was approved. İzmir Fırça’s request to increase its capital in a nominal amount in return for a sales price of 50 million TL on a private basis, and Kuvva Gıda’s request to increase its capital in a nominal amount in return for a sales price of 287.1 million TL were approved.
Analysts stated that today, in addition to the CBRT’s interest rate decision, weekly money and bank statistics will be followed in the country, and abroad, the intense data agenda, especially the BoE’s interest rate decision in the UK and second-hand house sales in the USA, will be followed, and from a technical perspective, BIST He noted that in the 100 index, 7,800 and 7,900 levels are resistance, while 7,700 and 7,600 points are support.
The data to follow in the markets today are as follows:
10.00 Türkiye, September consumer confidence index
14.00 Türkiye, September CBRT interest rate decision
14.00 UK, BoE interest rate decision for September
14.30 Türkiye, international reserves and foreign exchange liquidity in August
15.30 USA, weekly unemployment claims,
17.00 USA, August CB leading indicators index
17.00 Eurozone, September consumer confidence index (AA)
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