ZCZC
BCN-22
TURKEY-FOREX-BANK
Turkish lira tumbles another 5% as deputy bank chief steps aside
ANKARA, Aug 31, 2018 (BSS/AFP) – Turkey’s embattled lira tumbled almost
five percent in value on Thursday as the resignation of the deputy central
bank governor intensified market concerns over the direction of monetary
policy.
The lira has lost nearly 45 percent of its value since the start of the
year against the dollar as investors took fright over a bitter row with the
United States and anxiety over the direction of policy under President Recep
Tayyip Erdogan.
The lira was trading at 6.73 to the dollar, a loss of value of 4.5 percent
on the day, with Turkish markets closed due to a holiday.
A particular concern has been the independence of the central bank which
has not moved its headline interest rate higher despite the nose-diving
currency and inflation that has surged to almost 16 percent.
Economists fear that Erdogan is pressuring the nominally independent
institution not to raise rates in order to maintain growth, after he
described interest rates as the “mother and father of all evil”.
State-run news channel TRT Haber said that deputy central bank deputy
governor Erkan Kilimci was stepping down from the job he has held for the
last two years to a new post at the Development Bank of Turkey.
This should open the way for Erdogan to choose a figure of his own
choosing as new deputy governor. Kilimci was one of four deputies to governor
Murat Cetinkaya who sit on the monetary policy committee that sets interest
rates.
“With this development (the resignation of Kilimci) fuelling concerns over
Turkey’s fragile financial system, the lira could be set to extend losses,”
Lukman Otunuga, Research Analyst at FXTM, told AFP.
“Lira weakness may remain a dominant theme amid ongoing fears of double
digit inflation, the deepening of current account deficit and questions over
the central bank independence,” he added.
Turkey has been slapped with sanctions on two ministers and also with
doubled tariffs on aluminium and steel by the United States over its holding
for the last two years of US pastor Andrew Brunson.
Economists fear further measures from the United States would cause more
bleeding for the lira while the domestic outlook remains uncertain.
Turkey will on Monday release inflation data for August — which will be
scrutinised for any further jump. September 10 sees growth data for the
second quarter, with some economists fearing Turkey risks going into
recession in 2019 due to the tighter monetary conditions.
“The latest Turkish activity data suggest that the plunge in the lira
since May, and the associated sharp tightening of financial conditions, has
tipped the economy into recession. Things are only likely to get worse,”
Capital Economics said in a note.
A crucial watershed is expected to be the next meeting of the central bank
on September 13, with markets hollering for a hike to support the lira and
the currency likely to be punished in case of no action.
BSS/AFP/HR/0955