The Turkish central bank has held a meeting with representatives of Turkey’s leading lenders, The Banks Association of Turkey (TBB) said on March 23.

Also, two days ago, on March 21, the Erdogan regime’s economically “orthodox” and market-friendly finance minister Mehmet Simsek met with the board members of the TBB.

Simsek could be described as something like a mafia boss’s accountant. He does not steal, but what he does do is to the benefit of his master’s nefarious activities.

On Sunday, heavy anticipation was building for the Monday (March 24) market opening. The meeting with the bankers suggested that Turks who try to buy FX via the country’s financial system will again face serious difficulties, with their attempts failing.

Failing to stabilise

Since the detention of Istanbul’s mayor Ekrem Imamoglu (made the ex-mayor by the authorities on March 23) during the early morning hours of March 19, the Erdogan regime has struggled to stabilise the financial markets.

Across the three trading days since Imamoglu was taken into custody (Wednesday, Thursday, Friday), it is estimated that the central bank sold more than $10bn in reserves to avoid a meltdown in the lira.

On March 19, the USD/TRY rate jumped to the 42s from the 36s during the morning hours. Since then, the regime has been drawing one of its trademark “straight lines” on the USD/TRY chart, at around the 38-level this time.

More rate hikes?

On March 20, the central bank announced an emergency rate hike. More steps are expected to follow.

Holders of Turkey’s domestic government bonds have faced significant losses against the backdrop of jumping interest rates. However, this was mainly due to panic and the lira’s slide rather than the emergency rate hike announcement. More and real rate hikes will sadden the bondholders a little more.

Borsa Istanbul is also in freefall, but this, like the other troubling market factors, are not at this point a threat to the regime.

Ramadan holiday comes to rescue

Next week, on Monday (March 31) and Tuesday (April 1), there are public holidays marking the end of the Ramadan religious feast. So, ahead of the regime is a five-day long battle this week to keep the national currency afloat prior to the few days that will provide a break to draw breath.

Reserves not a problem

Since 2023, the regime has built its reserve buffers with the offering of high returns for carry trade players. Currently, the net international reserves excluding swaps stand at above the $60bn-level. This indicator saw the minus $60-70bn levels at the heights of Turkey’s period of unorthodox monetary policy, from which the Erdogan administration U-turned in July 2023 after national elections were over and done with.

According to calculations by @VeFinans, foreigners held $53bn worth of lira bonds and local stocks in addition to $37bn worth of derivatives stock with local banks as of March 14.

If they attempt to heavily offload, the prices will at least halve.

“So, someone who does not have $100bn worth of Turkish lira to sell against USD would fall short of wounding Turkey’s central bank,” bne IntelliNews noted on March 20.

“If Turks were to rush to buy dollars, it would be a game-changer. So far, they are not queuing in front of the exchange offices,” this publication added.

Foreigners also hold $67bn worth of Turkish eurobonds. However, they cannot access lira in selling them.

Turkey’s 5-year credit default swaps (CDS) have leapt into the 300s from around the 250-level. They will slide further. This indicator has seen the 700s at the peaks of previous market tumults. And, the regime still remains in power.

Turks will flounder as they try to buy dollars

For Turks, it is also not easy to buy dollars. As reported above, the banking system will simply get in their way.

When they rush to the exchange offices, they will see even higher spreads. If they collectively attempt to withdraw their money from the banks, they will face capital controls.

No threat from the market side

So, although the regime is signalling that it is panicking, a huge slap that would change the course of events is not expected from the market side.

In the medium term, after the Imamoglu dust settles, Turkey’s ruling elites will again give market-friendly signals and their customers within the finance industry who have stuck with them over the long term will not reject their highly profitable offers.