Hot Money Inflows to Turkey Reach $75 Billion and a New Tax Plan Is on the Agenda
While hot money inflows through foreign investors' carry trade transactions in Turkey have reached $75 billion, the economic administration is evaluating tax measures to limit potential risks.
The hot money flow from abroad into Turkey, driven by high interest rates, has reached a total size of $75 billion. While this strengthens the Central Bank's reserves, introducing a tax on money market funds against the risk of sudden outflows has come to the agenda.
Dimensions of the Hot Money Flow
Turkey offering one of the highest interest rates in the world has increased foreign investors' interest in Turkish Lira assets. It is calculated that the total position of investments made by borrowing at low cost from abroad has risen to approximately $75 billion.
It is stated that approximately $65 billion of this amount consists of foreign exchange forward transactions and $10 billion of money market funds.
Contribution to Reserves and Risk of Exchange Rate Volatility
On one hand, the intense hot money flow makes significant contributions to strengthening the Central Bank's reserves and supporting the Turkish Lira.
On the other hand, the risk of sharp movements in the exchange rate in the event of simultaneous exits by investors is being closely monitored by the economic administration.
Tax Preparation for Money Market Funds
It is known that the economic administration has been taking steps to reduce the attractiveness of short-term investments and direct capital toward more permanent instruments.
In this direction, it is stated that introducing a tax on earnings derived from money market funds is being evaluated and that the regulation will cover institutional investors.
Investor Returns and Expert Opinions
Since the beginning of the year, Turkish Lira-denominated carry trade transactions have provided investors with a return of approximately 11.2 percent.
QNB Turkey Chief Economist Erkin Işık emphasized that the main objective of the tax plan is to limit rapid capital outflows and reduce exchange rate volatility.