Fitch sees growing risk as Turkish lira hits new low

Turkey’s currency is causing great concern, having lost around 30 percent of its value this year and nearly 10 percent in the past two weeks alone. (Reuters)
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Updated 07 November 2020

Fitch sees growing risk as Turkish lira hits new low

  • Threat of worsening relations with the US could place more pressure on the currency

ISTANBUL: Turkey has not done enough policy tightening to support its lira, which tumbled to another record low on Friday, and the country’s FX reserves and external financing remain potential weak spots, according to Fitch Ratings’ key analyst.

Douglas Winslow, the agency’s primary Turkey analyst, told Reuters further pressure from the currency, double-digit inflation and depleted FX reserves “would significantly increase the chances” of a formal interest rate hike by year end.
The lira slid as much as 1.7 percent to a record low of 8.56 versus the dollar, despite the greenback’s weakness as votes were still being counted in Tuesday’s tight US election.
Turkey’s bilateral ties could suffer if Democrat Joe Biden continues to gain ground and becomes US president, adding more pressure on the lira that has dropped some 30 percent this year and nearly 10 percent in the past two weeks alone.
The Turkish central bank raised rates to 10.25 percent in September and could tighten again to head off the depreciation and address inflation stuck around 12 percent.
Yet the tightening of credit in recent months “has been insufficient to reverse the downward trend in the lira and (to a less extent) in foreign exchange reserves,” Winslow, a director on Fitch’s sovereign team, said in an email.

FASTFACT

Turkey’s FX reserves fell to $16.8 billion last month, the lowest since 2004.

Turkey is rated “junk” by the big three sovereign agencies. While Fitch’s rating of BB- is the highest, it revised the outlook to “negative” from “stable” in August citing depleted FX reserves and weak monetary policy credibility.
Winslow said the central bank has “limited independence” from political pressure for lower rates and “a track record of being slow to respond to events,” raising the risk that too-loose policy stokes external imbalances and market instability.
Yet he was more sanguine for now about two main triggers for a possible ratings downgrade: The lira has not caused “severe stresses” in the external financing position of banks or corporates; and the trend in FX reserves “has become somewhat less negative,” he said.
The central bank’s net FX reserves fell to $16.8 billion last month, the lowest since 2004, from $41.1 billion at the end of 2019. Adding to the lira’s woes, Turks’ holdings of foreign currencies and gold hit a record $221 billion last month.
Analysts say Turkey-US ties could strain further if Biden is elected and as expected toughens the US stance against Ankara’s military interventions abroad and its crackdown on dissent at home.
“To differentiate his administration from Trump’s, Biden would pay more than lip service to things like human rights, rule of law and democracy. That will be the real pressure on Turkey,” said Soli Ozel, lecturer on international relations at Kadir Has University in Istanbul.


Dubai carrier Emirates wins big at World Travel Awards

Updated 3 min 56 sec ago

Dubai carrier Emirates wins big at World Travel Awards

DUBAI: Dubai’s Emirates Airline was named as the “World’s Leading Airline” in three major categories at the World Travel Awards 2020.

Emirates took top rankings across global and regional categories based on a record voter turnout from tourism consumers.

The honors the airline took home were the “World’s Leading Economy Class,” “Airline Rewards Programme” and “Airline Lounge — Business Class.”

Earlier this month, Emirates also took home four regional World Travel Awards for the “Middle East’s Leading Airline Brand,” “Middle East’s Leading Airline Lounge — Business Class,” “Middle East’s Leading Airline Rewards Programme” and “Middle East’s Leading Airline Website.”