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Southeast Europe
November 24, 2017 www.intellinews.com I Page 15
Turkish markets endure rocky week
bne IntelliNews
The Turkish lira fell to an all-time low of 3.98
to the dollar in the week of November 20, while Turkey's 10-year government bond benchmark yield climbed as high as 13.20% on worries over whether the central bank was really free to try to combat the economy’s overheating.
As well as concerns over whether the central bank had lost any remaining independence, entrenched tensions with the US and intractable differences with the EU weighed on investor sentiment.
The central bank made some efforts to step in to support the lira with measures to tighten liquidity on November 21 but analysts were less than im- pressed, talking of too little, too late. Many analysts say it is clear that to fight surging double-digit inflation and its overheating economy Turkey needs an interest rate hike, pure and simple, but they
fear President Recep Tayyip Erdogan's mounting unorthodox pressure for the opposite move has tied the central bank's hands behind its back.
The veiled and limited tightening moves made by the regulator were viewed as a step taken to buy time ahead of its scheduled monetary policy committee (MPC) meeting on December 14, with the aim of avoiding an interim meeting.
Ministers and officials were able to steady senti- ment somewhat by the end of the week through verbal interventions, and by 1330 Istanbul time on November 24 the lira was at 3.95 to the dollar.
Deputy PM Mehmet Simsek tried to assure
investors on November 22 that the volatility on Turkey's markets was temporary.
“Turkey’s markets have been experiencing vola- tility recently due to concerns over the country’s relations with its Western allies. But, these fluc- tuations are temporary, the problems with the US and the West are temporary,” Simsek said, outlin- ing his perceptions of the depreciation difficulties in a speech in Istanbul.
The government would implement comprehensive reforms aimed at improving the business climate in the first quarter of 2018, he added.
Cemil Ertem, Erdogan’s chief economic adviser, tried to talk up the currency on November 24, argu- ing that the central band was free to raise rates.
“In the case of a deterioration in inflation expecta- tions, the bank can hike rates, and it can do so any time, without necessarily waiting for the next policy meeting on December 14,” Ertem told Reuters.
Analysts predict that the central bank will eventually have to take stronger action. Assessing the central bank’s moves this week as worth 25 basis points, Timothy Ash, senior sovereign strategist at BlueBay Asset Management, said in a note to investors: “A complete joke — like 25 basis points will make any difference. They are now limping to the next mone- tary policy committee meeting, which is weeks away and likely will have to have another late night, emer- gency MPC meeting before then to get the green light from Erdogan for a more substantive rate hike.”