- Posted January 24, 2014 by
Turkish Lira: Problem makes Problem
Last period especially from december it was very hard period for turkish lira and for turkish economy. Turkish Lira Falls to Record as Tax Increases Curb Rate Bets. The lira fell to a record and Turkish shares slumped on bets that price and tax increases will curtail growth and stoke inflation, leaving the central bank less likely to raise interest rates. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. Turkey’s central bank reacted on Tuesday to conflicting political and economic pressures by a move analysts saw as a rate increase through the back door that allows it to raise borrowing costs while keeping benchmark rates unchanged. Turkey’s currency depreciated as much as 1.9 percent to 2.30 against the dollar, the weakest since Bloomberg started tracking the currency in 1981, before trading at 2.1733 as of 5:31 p.m. in Istanbul. It tumbled 17 percent last year, the second-biggest drop among emerging markets in Europe, the Middle East and Africa, as a corruption probe led three ministers to quit. The benchmark stock index lost 1.2 percent. In another attempt to stabilise the lira, the bank sold $400m of foreign currency, but by early evening the lira was still down 0.8 per cent, at 2.2595. High quality global journalism requires investment. Adding to the dilemma facing the central bank, the fall in the lira is expected to lead to an uptick in inflation and the government has warned that the broader political and economic environment could bring about a temporary slowdown in growth in the first half of the year.
Main reason of Interest-rate increase is to rein in Turkey’s $60bn current account deficit and reduce its reliance on limited foreign exchange reserves for maintaining currency stability. In its World Economic Outlook published on Tuesday, the IMF warned that weaker emerging economies are exposed to sudden capital flight as the global economy recovers and central banks start winding down their extraordinary monetary stimulus.
Totally I believe that the evolution of the lira and inflation will eventually lead the central bank to implement an outright rate hike through raising [the overnight rate] to 10.50 per cent by the end of the year.
By Irakli Berdzenadze
Chief Executive Officer
I.B. Capital Management