Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Turkish lira rebounds from record low despite policy worries

EconomyNov 25, 2021 06:51
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A U.S. one dollar banknote is seen next to Turkish lira banknotes in this illustration taken in Istanbul, Turkey November 23, 2021. REUTERS/Murad Sezer/Illustration

By Daren Butler and Nevzat Devranoglu

ISTANBUL (Reuters) - Turkey's lira recovered as much as 7% on Wednesday after a historic slide to record lows a day earlier triggered by President Tayyip Erdogan's defence of rate cuts, but volatility and steep price rises still worried consumers and investors.

The currency hit all-time lows against the dollar in all 11 consecutive sessions before Wednesday and has lost as much as 45% of its value this year, with around half of those losses occurring since the start of last week.

However, the lira strengthened as far as 11.6 to the U.S. currency on Wednesday afternoon before easing to 12.08 by 1610 GMT, still some 38% weaker than at the end of last year.

Bankers said liquidity had virtually dried up, with moves to Tuesday's all-time low of 13.45 driven by panic dollar buying.

Many Turks, already grappling with inflation of around 20%, fear price rises will accelerate. Opposition politicians have accused Erdogan of dragging the country towards disaster.

Thousands of angry Turks queued at petrol stations late on Wednesday ahead of a steep hike in fuel prices, as others took part in scattered protests against the authorities' handling of the economy.

Retailers too are struggling with the turmoil, with some websites stopping sales of electronic products on Wednesday.

A sales representative at an Istanbul Apple (NASDAQ:AAPL) store said people were thinking of electronics as an investment as much as items to use. "It is pretty surreal with the economy and all, but people see it as a store of value," the representative said.

CRITICISM

Erdogan has defended the central bank's monetary policy and vowed to win his "economic war of independence", but faces widespread criticism, including from top economists, and calls for action to reverse the slide in the currency.

There has been no sign of any intervention to boost the currency. The central bank said on Tuesday it could only do so under certain conditions in "excessive volatility".

A banking source later told Reuters that officials from the central bank, Turkey's BDDK banking watchdog, and the board of Turkey's banking association will meet on Thursday afternoon to discuss recent developments in the economy.

"With today's exchange rate, official inflation could exceed 30% in the coming months. With the current deposit rate this means a real interest rate of -15%," former central bank chief economist Hakan Kara wrote on Twitter (NYSE:TWTR).

"If measures are not taken urgently, the financial system cannot cope with this," he added.

Erdogan has pressured the central bank to move to an aggressive easing cycle with the goal of boosting exports, investment and jobs.

Graphic: Lira's plunge over the years https://fingfx.thomsonreuters.com/gfx/mkt/egpbkaxkrvq/lira's%20plunge.png

But many economists have described the rate cuts as reckless and opposition politicians called for immediate elections. Turks told Reuters the dizzying currency collapse was upending their household budgets and plans for the future.

"The deviation from orthodox policies has a major toll on the economy," said Selva Demiralp, director of the Koc University-TUSIAD Economic Research Forum and a former U.S. Federal Reserve economist.

"There is an easing cycle on paper, but it will have a net contractionary impact on the economy," she said, commenting on the rate cuts and apparent indifference to the consequent lira depreciation.

Following a meeting between Erdogan and central bank governor Sahap Kavcioglu, the bank issued a statement saying the selloff was "unrealistic and completely detached" from economic fundamentals.

Two sources said Kavcioglu was holding preliminary talks at the presidential palace on Wednesday with United Arab Emirates officials regarding a potential swap agreement.

Tuesday's slide was the lira's largest since the height of a currency crisis in 2018 that led to a sharp recession and three years of below-par economic growth and double-digit inflation.

The central bank has slashed rates by a total of 400 basis points since September, leaving real yields deeply negative as virtually all other central banks have either begun tightening policy to stem rising inflation, or are preparing to do so.

Graphic: Turkey rates and inflation https://fingfx.thomsonreuters.com/gfx/mkt/mypmnkyymvr/turkey%20rates%202.PNG

Turkish lira rebounds from record low despite policy worries
 

Related Articles

Global shares decline on Omicron uncertainty
Global shares decline on Omicron uncertainty By Reuters - Dec 03, 2021

By Matt Scuffham and Elizabeth Howcroft NEW YORK/LONDON (Reuters) - Global shares fell Thursday, reversing gains from the previous session as a lack of information about the...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email