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7.1 Is the Turkish lira any less vulnerable than last year?
“Renewed collapse in lira” just a matter of time says Commerzbank. Turkey’s lack of a disciplined monetary policy means a “renewed collapse in the lira” is only a matter of time, according to Commerzbank.
Rabobank, meanwhile, has warned that a “major policy mistake could be in the making,” according to Bloomberg.
“Worryingly, over a longer horizon, the trend toward overly loose monetary policy risks exacerbating Turkey’s age-old vulnerabilities by fueling the twin dynamics of inflation and attendant currency weakness. These dynamics can wreak havoc on a highly leveraged economy, where both the private and public sectors are heavily reliant on FX-denominated financing,” Phoenix Kalen, a strategist at Societe Generale in London, observed in a note to investors.
Kalen added: “Recent events have persuaded us that the CBRT [Central Bank of the Republic of Turkey] may attempt a relatively thin real policy rate buffer of 2-3%, as the central bank has reconciled itself to aggressive monetary policy easing in facilitating the government’s pursuit of a credit-fueled economic recovery.”
49 TURKEY Country Report October 2019 www.intellinews.com