Emerging Markets

Turkish central bank raises key interest rate – Lira rightly skeptical

  The Turkish Central Bank (TCMB) has recently raised its key interest rate rather unexpectedly by 200 bp to 10.25%. The move was explicitly justified by the risks to the inflation outlook and the need to keep inflation expectations in check. The guardians of the currency had long been reluctant to take this step in the form of an increase in the official key interest rate, thus completing a move away from „more restrictive monetary policy through the back door“, which had been overdue for weeks. By mid-August at the latest, the central bank had arranged the supply of liquidity in such a way that commercial banks were forced into more expensive refinancing facilities. In this way, the guardians of the currency were able to increase the average refinancing costs of the financial institutions and thus provide a restrictive impulse to the Turkish money markets. At the same time, however,…

Turkey on track – for the next lira crisis

  The lira does not rest. The Turkish national currency recently recorded a new all-time low against the US dollar, and it does not look much better against the common European currency. The situation is made worse by the fact that, according to media reports, state-owned commercial banks have intervened in the foreign exchange market to support the lira. Otherwise, the devaluation would probably have been even more pronounced. It is true that the past few months have been characterized by enormous challenges for the majority of currencies in the emerging markets segment. However, there are few representatives who have performed as badly as the lira since the outbreak of the Corona crisis. It is also striking that not even the brightening of global sentiment observed since the beginning of May has left a lasting positive mark on the lira. The impression that the weakness of the national currency is…

Turkish Lira: Well-known weaknesses come back into focus

  After a relatively calm period around the Turkish Lira in the past few weeks, with the USD-TRY remaining stable around 6.85 TRY, this calm has suddenly ended. For the first time since mid-May, the currency pair has left the 7.00 TRY mark and currently even the historically weak quotations from May behind. This movement is all the more remarkable as the US dollar is currently in a difficult position itself – especially compared to the situation in May – and illustrates the prevailing pressure on the lira. However, the existing domestic problems are by no means new. In spite of the relatively stable development in June and July, we had classified the constellation for the lira as fragile, as Turkey basically offers sufficient scope for attack with an economy sliding deep into recession, a clearly rising budget and current account deficit and an expansive monetary policy course of the…

Emerging markets under corona stress

The COVID-19 crisis is a major challenge for the emerging markets. The growth dynamics of the countries are visibly suffering and at the same time the risk appetite of investors is decreasing. Capital withdrawal and lower investments are the result. For the Turkish economy, the Corona pandemic is a special challenge, as it is still weakened by the consequences of the last currency crisis two years ago. In Turkey, two important industries, the export industry and the tourism sector, have been hit hard. In contrast to the currency crisis two years ago, they are now completely absent as a support. The Turkish economy is therefore likely to suffer greater damage in the current year than in the currency crisis of 2018 and the financial crisis of 2009. The Turkish economy is expected to shrink by 8% in 2020 compared with the previous year. The development of the currencies reflects the…

Renewed defeat in Istanbul increases the pressure on Erdogan

The new mayor of Istanbul is Ekrem Imamoglu – and this time for real. The candidate he ran against, Binali Yildirim of the AKP, has already conceded defeat, and President Erdogan has congratulated Imamoglu on his success. For the AKP, and above all for the head of state, the loss of the economic powerhouse to the opposition is a problem. No less a person than Erdogan himself is rumoured to have said: “Whoever wins Istanbul, wins Turkey.” Imamoglu is undoubtedly still well away from achieving that, but having lost the largest city in the country, the AKP has also lost a major source of money with which to supply favourites and others upon which favour is to be bestowed with lucrative jobs and contracts. In addition to this, the AKP now no longer holds the reins in any of the three largest cities in the country. Even if many pundits…

Turkish Lira in difficult waters

This year, the Turkish Lira has to date made no headway. On the contrary, the currency has lost a good 10% against the Euro since the beginning of the year. The list of factors dragging it down is anything but short. Global trends play a role, admittedly, but this should not detract from the fact that the major challenges to the Lira are to be found on the home front and, as was the case last summer, the difficulties are indeed home-grown. Against the backdrop of the annulled results of the local elections in Istanbul, investors have become ever more concerned that Turkey under Erdogan is distancing itself (still) further from basic democratic principles. It is precisely these worries that are damaging the reputation of the Turkish central bank, on top of which diplomatic relations with the US are tense. Washington is threatening that the NATO partner will face consequences…

1 2 5