Three central banks tighten in the same week: answering a supply shock with rates, and Türkiye's carry flows

Istanbul Finance Center towers at dusk, Ataşehir — Istanbul Finance Center, Ataşehir (September 2023)Photo: Acode37 / Wikimedia Commons · CC0 · Source

Why it matters

Three major central banks responding to an energy-driven supply shock by suppressing demand in the same week amounts to a regime change in the global cost of capital. Economies such as Türkiye that depend on external financing and carry trade flows feel this change directly, even if their own central bank takes no decision.

Implications

The US 10-year yield hit 5.04% on 15 September, its highest level since 2007; the cost of dollar-denominated borrowing is rising.
In Türkiye the policy rate is 37% and annual inflation 31.51%: the real rate is about 5.5 points, and as global rates rise the relative appeal of this differential diminishes.
About 62% of reserves are gold; with the gold price falling back to around 4,300 dollars, the value of reserves can erode even without FX sales.

Noise

Record reserve headlines

Signal

The Fed signalled a further hike

Signal vs Noise ›

Map: Three central banks tighten in the same week: answering a supply shock with rates, and Türkiye's carry flows

Regime change

On 16 September the Federal Open Market Committee raised rates to a range of 3.75–4.00 per cent by a 12–0 vote. It is the first hike since July 2023. In the September projections the median rate for end-2026 is 4.1 per cent, meaning one more hike is expected before the year is out. The ECB raised its deposit rate to 2.50 per cent on 10 September. According to ING's preview, the Bank of Japan is expected on 18 September to lift its rate from 1.00 per cent to 1.25 per cent, the highest level since April 1995.

The trigger is supply, not demand. In the US, August headline inflation rose to 3.4 per cent while core inflation eased to 2.4 per cent; most of the gap comes from energy. In the euro area inflation is 3.3 per cent, with energy prices up 14.3 per cent year on year. Monetary policy cannot increase oil supply; what central banks are trying to do is prevent the price shock from becoming permanently embedded in expectations and wages.

The message from the yield curve

According to the Fed's H.15 data, the US 30-year yield peaked at 5.37 per cent on 10 September and closed at 5.34 per cent on 14 September. In August the Treasury Borrowing Advisory Committee warned of a 1.45 trillion dollar financing gap for fiscal years 2027–2028. In Europe the 10-year spread between France and Germany rose to 95.6 basis points on 16 September, its highest in a year. In Japan the 30-year yield is above 4 per cent.

This picture shows that tightening is not confined to short-term rates. Long-term yields are rising on fiscal deficit concerns and inflation risk. For emerging markets this means higher refinancing costs in dollars and euros, and capital seeking high-yielding assets becoming more selective.

The transmission channel to Türkiye

On 10 September the Central Bank of the Republic of Türkiye held its policy rate at 37 per cent. In August annual inflation was 31.51 per cent and the core C index 30.07 per cent. In the September Survey of Market Participants the year-end inflation expectation rose to 29.61 per cent, above the 28.4 per cent forecast in the Medium-Term Programme. The 12-month-ahead USD/TRY expectation is 58.60 lira.

The most visible face of transmission is portfolio flows. In the week of 4 September non-residents made net sales of 647.6 million dollars in equities and net purchases of 156.7 million dollars in government domestic debt securities. Sources give mutually inconsistent figures for total foreign flows since the start of the year; the composition of total flows therefore could not be verified. On Borsa Istanbul the BIST 100 index fell 2.41 per cent and the banking index 4.15 per cent on 15 September; according to Investing.com data, the 5-year CDS rose to 229.99 basis points the same day.

The unseen connection

Türkiye is tied to the same commodity complex at both ends, in opposite directions. The 12-month current account deficit is 40.7 billion dollars; excluding gold and energy, the current account shows a surplus of about 4.97 billion dollars. At the same time about 62 per cent of gross reserves are gold. When oil rises the current account deteriorates; when gold falls the reserve picture deteriorates. Of the 3.95 billion dollar decline in gross reserves in the week of 4 September, about 3.5 billion dollars stemmed from the gold price, according to Gedik Yatırım's calculation.

Türkiye's near-term room for manoeuvre therefore rests on patience rather than rate cuts. Narrowing the real rate differential while global rates rise would put carry flows at risk. The S&P credit rating review on 16 October and the 22 October monetary policy meeting will be the first formal tests of this balance.

Probabilities

Scenarios

Scenario	Probability	Trigger	Market impact
H1Patient tightness	55%	The Fed hikes once more by year-end, the CBRT holds rates and oil stays above 100 dollars.	The real rate differential narrows but carry flows do not unwind; CDS stays in a high band.
H2Energy relief	25%	Physical flows through Hormuz increase and oil falls markedly.	Inflation expectations improve and the current account path recovers.
H3Carry unwind	20%	The yen strengthens on a Japanese rate hike, global leveraged positions unwind and a new oil shock hits.	Emerging market carry trades are liquidated indiscriminately.

Module A

Constraints Matrix

STRUCTURAL AVG 4.0 · TACTICAL AVG 2.7Structural constraints dominate: the outcome is set more by these limits than by the actors' preferences.

Hard structural constraintspersistent · beyond the actors' will

Energy- and gold-driven current account deficit · Türkiye
4/5
The 12-month current account deficit is 40.7 billion dollars; excluding gold and energy, the current account is in surplus.
Gold weighting of reserves · Türkiye
4/5
About 62 per cent of gross reserves are gold; a price fall erodes reserves without any FX sales.
Structural US financing need · United States
4/5
TBAC warned of a 1.45 trillion dollar gap for fiscal years 2027–2028; long-term yields are high.

Tactical frictiontemporary · eases over time

Central bank calendar weeks
3/5
The BoJ on 18 September, the CBRT on 22 October and Fed meetings through year-end are generating near-term volatility.
Credit rating review weeks
3/5
S&P's 16 October assessment will be decisive for the risk premium.
Domestic political agenda days
2/5
A court ruling and talk of early elections fed through to banking stocks on 15 September.

Module B

Signal vs Noise

SIGNAL 75% · NOISE 25%

SIGNAL
The Fed signalled a further hike
In the September projections the median rate for end-2026 is 4.1 per cent, implying one more hike above the current range.
Data: US 30-year yield ›Federal Reserve — September projections
SIGNAL
Türkiye's CDS widened by about 13 basis points in two weeks
According to Investing.com data, the 5-year CDS was 218.54 basis points on 1 September and 229.99 on 15 September.
Data: Türkiye 5-year CDS ›Investing.com — Türkiye 5-year CDS
SIGNAL
Foreign equity selling is diverging from carry flows
In the week of 4 September, net sales of 647.6 million dollars in equities and net purchases of 156.7 million dollars in government domestic debt securities.
TGRT Haber — Securities statistics for the week of 4 September
NOISE
Record reserve headlines
Most of the weekly decline in gross reserves came from the gold price; the gross figure alone does not show FX capacity.
Hibya — Net reserves excluding swaps

Module C

Asset-Class and Positioning Implications

Asset class	Exposure	Transmission channel	H1	H2	H3	Expected	Conviction	Horizon	What to watch
Sovereign debt	Extended-maturity US Treasury yield	Term premium driven by inflation risk and the fiscal deficit	−	+	+	−0.10	●●●	3–12 months	US 30-year yield and the TBAC calendar
Credit	Türkiye external debt risk premium	Global rates, the energy bill and the credit rating	−	+	−−	−0.70	●●●	0–3 months	5-year CDS and the 16 October S&P decision
FX	Real value of the Turkish lira	Real rate differential and carry flows	0	+	−−	−0.15	●●●	0–3 months	Weekly foreign securities flows
Equities	Turkish banking stocks	Funding costs, domestic political risk and foreign flows	−	++	−−	−0.45	●●●	0–3 months	Banking index and foreign ownership share

Second-order effects

And then what?

Starting point

The Fed raised its rate to the 3.75-4.00% range on 16 September, the ECB moved its deposit rate to 2.50% on 10 September, and the Bank of Japan is expected to raise to 1.25% on 18 September. Three major central banks are answering an energy-driven supply shock by suppressing demand in the same week.

1
Term premiumwithin days
Tightening is not confined to policy rates; fiscal deficit concern is lifting the far end of the curve too: the US 10-year yield reached 5.04% on 15 September, its highest since 2007, the 30-year peaked at 5.37% on 10 September, and the TBAC warned of a 1.45 trillion dollar deficit for 2027-2028.
Watch: The US 30-year yield relative to the 5.5% threshold and the Treasury borrowing calendar
2
Carry trade flowswithin weeks
As dollar and euro refinancing grows more expensive, capital moving into high-yielding assets becomes more selective; with the policy rate at 37% and annual inflation at 31.51% in Türkiye, the relative appeal of a real rate differential of about 5.5 points erodes of its own accord even if the CBRT takes no decision.
Watch: Weekly foreign securities flows; whether the 647.6 million dollar net equity outflow of the week of 4 September repeats
3
Reserves and the risk premiumwithin months
As flows weaken, the reserve side is pressed through a second channel: because roughly 62% of gross reserves consists of gold, a retreat in the gold price erodes reserves even without FX sales; about 3.5 billion dollars of the 3.95 billion dollar fall in the week of 4 September came from the gold price.
Watch: The S&P rating review of 16 October and the 5-year CDS relative to the 250 basis point threshold

What breaks the chain

If physical flows through the Strait of Hormuz increase and oil retreats markedly, the chain breaks: as the supply shock eases, the case for tightening at all three central banks weakens, inflation expectations and the current account path improve, and no patience is required to protect the real rate differential.

Triggers

Thresholds to watch

Indicator	Threshold	Today	What it means
Türkiye 5-year CDS	> 250	251	The zone where the risk premium fully prices the energy bill channel.
US 30-year yield	> 5.5	5.28	The zone where global risk appetite contracts markedly.
USD/TRY	> 52	50.05	Deterioration in expectations feeding quickly into the exchange rate.

Sources

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