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20 I Companies & Markets bne June 2018
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Turkish lira hammered again after Erdogan ‘unchained’ stakes claim to monetary role
bne IntelliNews
The Turkish lira (TRY) took another hammering on May 15, and fell to a further record low, after Turkey’s President Recep Tayyip Erdogan told Bloomberg TV in London that he planned to tighten his grip on the economy and assume a greater role in setting monetary policy if he is kept in power by the June 24 snap election.
The currency slid around 2% d/d against the dollar to hit
a new all-time low of 4.4626 – taking it to more than 14% down in the year to date – before recovering slightly to 4.4440 as of 16:45 local time. However, by 17:15, it had plumbed a fresh all-time low of 4.4748. On the Istanbul stock exchange the benchmark BIST-100 index closed 1.77% down at 101,540.39, while the day also saw the yield on Turkey’s 10-year benchmark domestic bonds climb to 14.19% from 13.92%. Back on April 27, the 10-year yield stood at 12.60%. The 2-year domestic bond yield, meanwhile, rose to 16.32% from May 14’s close of 16.10%. The 2-year yield stood at 14.36% as of April 27.
For months prior to the interview, investors were already anxious that the Turkish central bank was failing to respond to Turkey’s economic woes, such as double-digit inflation and an overheating economy, with a sufficient dose of monetary tightening given the continuous pressure for cheaper money coming from Erdogan.
Soon after the morning interview, Saxo Bank said the market would punish Erdogan’s comments. It saw the TRY falling to 4.50 against the dollar, with the Turkish central bank's cred- ibility at stake.
Given approved constitutional changes, if he wins the coming presidential election Erdogan – who today completes a three- day trip to the UK – will become an executive president with sweeping powers, while the position of prime minister will be abolished and parliament will have a much reduced role. Erdo- gan, who has long claimed in the face of conventional wisdom that the particular economic needs of Turkey mean that rather than interest rate hikes the economy needs lower rates to drive investment and create jobs, told Bloomberg’s Guy Johnson
in a televised interview that the Central Bank of the Republic
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of Turkey (CBRT), while independent, would not be able to ignore signals from the new executive presidency.
“I will take the responsibility as the indisputable head of the executive in respect of the steps to be taken and decisions on these issues,” Erdogan stated.
Erdogan also said that citizens would ultimately hold the president responsible for any problems generated by monetary policy. “They will hold the president accountable. Since they will ask the president about it, we have to give off the image
of a president who is effective in monetary policies,” he said, adding: “This may make some uncomfortable. But we have to do it. Because it’s those who rule the state who are account- able to the citizens,” he said.
Responding to Erdogan’s interview comments, Timothy Ash, a strategist at Bluebay Asset Management, dubbed the Turkish leader “Erdogan unchained’”.
Erdogan has claimed that the weakness of the lira does not reflect the true state of Turkey's economy. It outstripped the Chinese economy last year by growing at 7.4%, but analysts are concerned the credit-fuelled expansion, which has sucked
“We have to give off the image of a president who is effective in monetary policies”
in imports, is coming off the rails. Signs of major conglom- erates struggling to pay their hard currency-denominated debts have set off alarm bells.
The TRY trimmed some of its losses on May 15 after one
of Erdogan’s advisers, Cemil Ertem, said the central bank had the independence to use all the tools at its disposal and told Reuters: “President Erdogan’s emphasis is not directed