Page 14 - bne_newspaper_June_01_2018

Southeast Europe
June 1, 2018 www.intellinews.com I Page 14
Three-day Turkish lira recovery runs out of steam as investors await inflation data
bne IntelliNews
After advancing for three days against the dollar, the embattled Turkish lira (TRY) ran out of steam on May 31, weakening beyond the 4.50 threshold once more.
Nevertheless the TRY is now only around 15% down versus the greenback in the year to date, having been 20% or more down during much of the past few weeks as a combination of domestic and global economic and political factors com- bined to send it into a nosedive. At around 17:30 local time on May 31 it stood at 4.5165.
Investors are clearly looking ahead to the June 4 release of the May inflation data that is scheduled for three days before the central bank’s next policy setting meeting. If the figures are disappointing, the regulator will need to make another interest rate hike, to follow the 300-basis point increase
it made on May 23, to show the market it is seri- ous about getting ahead of the monetary curve and is not under the thumb of President Recep Tayyip Erdogan. Erdogan typically makes unor- thodox calls for rate cuts, even when the markets are conventionally clamouring for hikes amid an overheating economy bedevilled by double-digit inflation, a surging current account deficit and growing concerns over corporate debt held in foreign exchange.
The TRY is still on course for its best weekly per- formance in almost seven years and the currency was further boosted on May 31 when the world’s largest asset manager, BlackRock, confirmed to Reuters that it has raised its exposure to the bat- tered currency and Turkey’s hard-currency bonds in the wake of the sell-off.
“We have lately invested in Turkey over the last week,” Sergio Trigo Paz, the firm’s head of emerg- ing markets portfolio management, reportedly said. “We like the currency now and the dollar debt, but we don’t like rates because... [with] rates there is still a situation where inflation needs to be stabilised, it’s too early to go there,” he added.
Turkey is suffering worsening inflation expecta- tions and a Reuters poll showed this week that its monthly inflation is likely to jump 1.45 percent in May, translating into an annual increase of nearly 12 percent.
Finance Minister Naci Agbal said on May 31 that Turkey would also tighten fiscal policy just as it has with its monetary policy. The two needed to be in harmony, he told broadcaster Bloomberg HT. He added that growth in the first quarter of this year was strong and that April and May indicators showed a balancing outlook for the economy.”