Turkish central bank struggles to lift lira off lows

Updated 12 March 2015
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Turkish central bank struggles to lift lira off lows

ANKARA/ISTANBUL: Efforts by Turkey's central bank to defend the lira did little to lift it off record
lows on Tuesday, outweighed by a globally strong dollar and concern about President Tayyip Erdogan's intervention in monetary policy.
In a complex series of steps, the bank said it would adjust its reserve requirements — used to control the amount of dollars in the market — to temporarily boost forex liquidity by some $1.5 billion over the coming weeks.
The lira weakened to 2.6455 to the dollar by 1155 GMT, just shy of a record low hit last Friday, partly as expectations of a US interest rate hike pushed the dollar to multi-year highs.
The lira has fallen around 12 percent against the dollar this year, and was the worst-performing emerging market currency against the greenback on Tuesday, according to Reuters data.
Its falls have been exacerbated by Erdogan's demands for sharp interest rate cuts to boost growth ahead of a June election. That has tied the central bank's hands, leaving it unable to contemplate a rate hike and trying instead to defend the currency with policy adjustments on the margins.
"In this environment countries don't need to give investors any excuse to sell," said Timothy Ash, head of emerging markets research at Standard Bank in London.
"In Turkey's case we have an administration that thinks it is cleverer than everyone else, and the market ... Turkey needs to get back to plain vanilla policy (and) the government needs to back off from the central bank," he wrote in a note.
There is little immediate sign of that happening.
Central Bank Gov. Erdem Basci will brief Erdogan on Wednesday on the latest developments, and is due to meet with Prime Minister Ahmet Davutoglu and nine cabinet ministers later on Tuesday.
Economy Minister Nihat Zeybekci, one of the cabinet's most vocal critics of the central bank, said on Tuesday it should have cut interest rates before its last meeting in late February.
The cost of insuring exposure to Turkish debt rose to 11-month highs, with Turkey's 5-year credit default swaps (CDS) rising by 227 basis points, bankers said.
The benchmark 10-year government bond yield rose to 8.36 percent from 8.28 percent on Monday, while the main Istanbul stock index was down more than 2.7 percent, lagging emerging markets peers.


Dubai real estate market recovery to be seen as of 2022: S&P

Updated 20 February 2019
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Dubai real estate market recovery to be seen as of 2022: S&P

  • The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate
  • S&P was generally comfortable with the credit ratings of the emirate’s banking system

DUBAI: S&P Global, the ratings agency, painted a grim picture for the real estate sector in Dubai, with a meaningful recovery in property prices expected only after 2022.
At a presentation to journalists in the Dubai International Financial Center, S&P analyst Sapna Jagtiani said that under the firm’s “base case scenario,” the Dubai real estate market would fall by between 5 and 10 percent this year, roughly the same as the fall in 2018, which would bring property prices to the levels seen at the bottom of the last cycle in 2010, in the aftermath of the global financial crisis.
“On the real estate side we continue to have a very grim view of the market. While we expect prices to broadly stabilize in 2020, we don’t see a meaningful recovery in 2021. Relative to the previous recovery cycle, we believe it will take longer time for prices to display a meaningful recovery,” she said.
S&P’s verdict adds to several recent pessimistic assessments of the Dubai real estate market. Jagtiani said that conditions in the other big UAE property market, in Abu Dhabi, were not as negative, because “Abu Dhabi never did ramp up as much in 2014 and 2015 as Dubai.” S&P does not rate developers in the capital.
She added that a “stress scenario” could arise if government and royal family related developers — such as Emaar Properties, Meraas, Dubai Properties and Nakheel — which have attractive land banks and economies of scale, continue to launch new developments.
“In such a scenario, we think residential real estate prices could decline by 10-15 percent in 2019 and a further 5-10 percent in 2020. In this case, we expect no upside for Dubai residential real estate prices in 2021, as we expect it will take a while for the market to absorb oversupply,” she said.
S&P recently downgraded Damac, one of the biggest Dubai-based developers, to BB- rating, on weak market prospects.
However, Jagtiani said that, despite the “significant oversupply” from existing projects, several factors should held stabilize the market: Few, if any, major product launches; improved affordability and “bargain hunting” by bulk buyers; and a resurgence of Asian, especially Chinese, investor interest in the market.
Jagtiani also said that government measures such as new ownership and visa regulations and reduction in government fees could help prevent prices falling more sharply, as well as “increased economic activity related to Dubai Expo 2020, which is expected to attract about 25 million visitors to the emirate.”
The outlook on property was part of a challenging assessment of the credit-worthiness of the emirate. “In our view, credit conditions deteriorated in Dubai in 2018, reducing the government’s ability to provide extraordinary financial support to its government related entities (GREs) if needed,” S&P said in a report. “The negative outlook on Dubai Electricity and Water
Authority (DEWA) partly reflects our concern that a real estate downturn beyond our base case could out increased pressure on government finances,” the report said.
It pointed out that about 70 percent of government revenues come from non-tax sources, including land transfer and mortgage registration fees, as well as charges for housing and municipality liabilities, as well as dividends from real estate developers it controls, like Emaar and Nakheel.
S&P was generally comfortable with the credit ratings of the emirate’s banking system, which has an estimated 20 percent exposure to real estate. “Banks in the UAE tend to generally display a good level of profitability and capitalization, giving them a good margin to absorb a moderate increase in risks,” the report said.