Turkish central bank raises rates sharply to prop up lira

President Erdogan has said he wants to take more control of the country’s economy (AFP)
Updated 24 May 2018
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Turkish central bank raises rates sharply to prop up lira

  • Turkey's central bank announces a sharp hike in interest rates to boost the embattled lira
  • The bank said after an emergency meeting of its monetary policy committee it was raising the late liquidity window (LLW) lending rate from 13.5 percent to 16.5 percent

ANKARA: Turkish President Recep Tayyip Erdogan is facing a potentially severe crisis just a month ahead of elections over the sharp depreciation of the lira which risks buffeting his campaign and even influencing voters.
In an indication of the severity of the situation, the central bank hiked one of its key interest rates 300 basis points (bps) after an emergency meeting on Wednesday, after inaction for days amid Erdogan’s opposition to rate rises.
Erdogan has always painted himself as a champion of the Turkish economy, pointing to how growth and investment have expanded under his rule after the misery of Turkey’s 2000-2001 financial crisis.
But the lira’s depreciation by nearly 19 percent against the US dollar since the snap polls were called on April 18 may signal the economy could be a burden, rather than a boost, for Erdogan.
The Turkish strongman, a doughty campaigner and so far undefeated at the ballot box in any poll, has been strangely reticent in this campaign although his team emphasises his rallies will get fully under way on Saturday.
And when he speaks to the crowds in town squares nationwide, Erdogan will have to now confront people’s fears that the external value of the money in their pocket is crumbling.
“For Turks, a weak currency translates into a weak economy, so it’s difficult to see how this will not hurt Erdogan and the AKP (ruling party) even though their voter base is fairly loyal,” said Atilla Yesilada, country adviser at Global Source Partners in Istanbul, said.
Although the country was the fastest growing in the G20 in 2017, recording 7.4 percent growth, concerns remain over the economy overheating, the widening current account deficit and double-digit inflation. Inflation is currently at 10.85 percent.
Erdogan himself has spooked the markets by saying he plans a greater say in monetary policy — despite the nominal independence of the central bank — after the polls.
The central bank move to raise the late liquidity window (LLW) lending rate from 13.5 percent to 16.5 percent prompted a sharp rally in the value of the lira.
Even though the June 24 polls come at a time of strains with the West and the Turkish army is fresh from a successful operation inside Syria, pollsters’ surveys show the economy is the issue of most concern to Turks.
In polling done earlier this month by Ankara-based MAK Consultancy, 45 percent of 5,400 respondents told researchers the country’s most significant issue was the economy.
Another survey last month by Gezici pollster found 48.6 percent said economic woes were Turkey’s biggest issue.
And Turks’ faith in their economy is falling: the consumer confidence index dropped by 2.8 percentage points in May to 69.9 from 71.9 in April, according to the Turkish statistics office on Wednesday.
“Globally, it is shown that the economic performance has an immediate impact on voting behavior. Hence, the sizeable economic costs may have an impact on voting behavior,” Selva Demiralp, associate professor of economics at Koc University in Istanbul, told AFP.
She warned it was “hard to predict how the economy will evolve in the near future.”
Yesilada added: “If this exchange rate shock translates into weaker economic performance they will lose some more votes and the spectre of AKP losing power could become a reality in a fair election.”
Analysts have long said Erdogan’s administration has been split between pro-market pragmatists like Deputy Prime Minister Mehmet Simsek, a former Merrill Lynch strategist, and advisers known for outlandish statements such as Yigit Bulut.
The central bank’s decision ended days of suspense on the markets over whether it would raise rates after Erdogan called for lower rates to boost growth.
“It’s high time to restore monetary policy credibility and regain investor confidence,” Simsek said on Twitter after the bank’s move.
“The Central Bank governor and members of the monetary policy committee have my full backing in doing what’s necessary to stem the slide in lira and achieve price stability,” he added.
Erdogan has often blamed outsiders for economic problems in Turkey, railing against unnamed actors trying to wage “economic terror” against the country.
Deputy Prime Minister Bekir Bozdag on Wednesday said voters were aware of the games being played.
“They are deluded if they think they can change the outcome of the election by playing with the dollar,” Bozdag said.


Egypt stock market plunges as retail investors take flight

Updated 19 September 2018
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Egypt stock market plunges as retail investors take flight

  • Biggest index drop in Egypt since mid-2016
  • Saudi Arabia outperforms in Gulf

LONDON: Egyptian stocks tumbled to their lowest level this year on Wednesday as retail investors took flight.
A sharp rise in Suez Canal revenues, a major foreign exchange earner for the country, was not enough to quell investors concerns about the strength of the currency.
The main Egyptian stock index lost 3.8 percent which some fund managers blamed on generally negative sentiment toward emerging markets worldwide as well as more local speculation about possible currency devaluation.
“Our channel checks suggest the sell-off in the Egyptian market is local retail and institutions driven, on currency fears and speculation over a further round of devaluation,” said Vrajesh Bhandari, portfolio manager at Al Mal in Dubai, Reuters reported.
“Selling is further intensified as margin calls are triggered and technical support levels break down. The country canceled three consecutive Treasury auctions, citing investors’ unrealistic yield demands.”
Egypt’s Suez Canal revenues rose to $502.2 million in August up 6.7 percent from a year earlier according to official data released on Wednesday.
Elsewhere regional stock markets closed mostly lower with the exceptions of Abu Dhabi which edged 0.2 percent higher and Saudi Arabia, the best regional performer, which rose by 1.1 percent.
Saudi stocks are benefiting from the strong oil price which eased slightly yesterday but still hovered just under $79.
OPEC and some other oil producers including Russia will meet in Algeria on Sept. 23 to discuss how to allocate supply increases within their quota framework to offset the loss of oil exports from Iran following the introduction of sanctions by the US.
Those measures will come into force on Nov. 4 and data suggests that buyers are already retreating from Iranian crude purchases.
A key question for the oil price as well as regional stock markets in the weeks ahead will be the extent to which other Gulf oil exporters can compenaste for the loss of Iranian supplies by pumping more.