Erdogan’s new dove: Five questions for Turkey’s central bank

Erdogan’s new dove: Five questions for Turkey’s central bank
For many analysts, Erdogan’s latest intervention has left the bank’s credibility in tatters. (AFP)
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Updated 15 April 2021

Erdogan’s new dove: Five questions for Turkey’s central bank

Erdogan’s new dove: Five questions for Turkey’s central bank
  • Erdogan fired latest governor last month
  • Dismissed two days after he raised interest rates

ISTANBUL: Turkey’s fourth central bank chief in less than two years will oversee his first policy decision on Thursday, after President Tayyip Erdogan rocked financial markets by firing a well-respected governor who had hiked rates just last month.
Erdogan replaced Naci Agbal, a policy hawk, with Sahap Kavcioglu, who has openly criticized Turkey’s tight monetary stance and who shares the president’s unorthodox view that high interest rates cause inflation.
The shock decision on March 20 raised expectations that the policy rate, now at 19 percent, would soon be cut and sent investors fleeing, knocking the lira 12 percent lower. For many analysts, Erdogan’s latest intervention has left the bank’s credibility in tatters.
Here are five questions ahead of the bank’s policy decision this morning:

1. WHAT HAS HAPPENED SINCE LAST MONTH’S RATE HIKE?
On March 18, the bank under Agbal raised rates by 2 percentage points — more than had been expected — to address inflation that was headed beyond 16 percent, and to reinforce his hawkish rhetoric. Two days later, early on a Saturday morning, he was fired.
Minutes after trading began the following Monday, the lira had plunged as much as 15 percent, to 8.485 versus the dollar, leaving it just above the record low hit the day before Agbal was appointed in November 2020.
Stocks had their worst selloff since the 2008 global financial crisis as foreigners dumped nearly $2 billion in Turkish assets in a week. The cost of insuring investments using credit default swaps jumped by 150 basis points to 450 bps.
“Because the whole change of governor has come in such a surprising fashion, the market is quite skeptical,” said Reza Karim, assistant fund manager, emerging markets debt, at Jupiter Asset Management, which has CDS insurance on an already “underweight” Turkish position.
“If they stay put ... and maintain the hawkish policy then that’s a positive sign,” he said of Thursday’s rates meeting.

2. WHERE DOES THE NEW GOVERNOR STAND?
Kavcioglu, a former banker and lawmaker in Erdogan’s ruling party, wrote in a newspaper column as recently as February that high rates do not help the economy and “indirectly cause inflation to rise.”
Since taking the job, he has downplayed those views and promised tight policy for a while given high inflation.
Asked on a call about his past columns, he told investors he would now act in line with his “institutional task” and urged them to “judge me after” the April policy decision, according to sources who took part in the call.
The assurances have resonated — for now.
All but two of 19 economists polled by Reuters expect Kavcioglu to hold rates this week. Oyak Securities said the lira could weaken if the bank’s post-meeting statement removes a reference to raising rates if needed, while Morgan Stanley warns a surprise cut would trigger a 15-20 percent plunge.

3. HOW IS POLICY LIKELY TO CHANGE?
Beyond this month, Kavcioglu is expected to cut rates sooner than would have happened under Agbal, whose hawkish moves sparked a brief lira rally that reversed a years-long exodus of foreign funds.
Five of 14 poll respondents predicted policy easing before mid-year, while seven forecast a move in the third quarter. Yet over the next two years, money markets appear to be betting rates will end up higher due to inflation pressure.
Premature rate cuts that further weaken the lira could, in turn, prompt Turkey to consider adopting some form of capital controls, some analysts say. The government has firmly dismissed this option.
“If you can’t raise rates and you don’t have sufficient reserves, then you don’t have any other choice if you want to limit exchange rate depreciation,” said Morgan Stanley’s chief economic adviser Reza Moghadam, a former IMF regional head.
“A lot of central banks that have reserve difficulties get into those (controls) but it doesn’t usually end well.”

4. WHAT ARE THE RISKS FOR INVESTORS — AND FOR TURKEY?
Investors were drawn by higher yields as Agbal adopted one of the tightest monetary policies in the world. After he was fired, sparking some big losses, some investors said they would not come back.
Ratings agencies say the reaction to Erdogan’s decision — and the harm it does to monetary policy independence — raises the risk of a balance-of-payments crisis given Turkish banks and companies have some $160 billion in short-term foreign debt.
The buffer against such a crisis is thin: a costly and unorthodox policy in 2019-2020 of selling some $128 billion in dollars to support the lira has depleted the central bank’s FX reserves by about 75 percent.
The lira’s slide, along with higher oil prices, has meanwhile raised import prices and pushed inflation up to 16.2% in March. Wall Street banks predict it will reach as much as 19 percent this quarter, keeping basic living costs high for Turks hit by the pandemic and joblessness.

5. WHAT DOES ERDOGAN WANT?
Reuters reported that Erdogan ousted Agbal for two reasons: his long-held aversion to high rates, and politics.
Erdogan was uncomfortable with Agbal’s investigation into the $128 billion in FX sales undertaken during his son-in-law Berat Albayrak’s stint as finance minister, sources said.
Agbal had promised to rebuild the FX buffer and the government has promised to stick to free-market principles. But analysts say the bank could revert to FX interventions under Kavcioglu.
Erdogan — who has shoved out three central bank governors in two years — called for single-digit rates again this month.
“Comments from Erdogan confirm his desire to cut rates rapidly and so there is clear risk of a dovish surprise this week,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.
“The economy is suffering greatly from the pandemic and Erdogan is desperate to inject some stimulus quickly,” he said.


Saudi tourism chief eyes Q4 turning point as international flights resume

Saudi tourism chief eyes Q4 turning point as international flights resume
Updated 17 May 2021

Saudi tourism chief eyes Q4 turning point as international flights resume

Saudi tourism chief eyes Q4 turning point as international flights resume
  • Saudi Arabia is targeting 100 million annual visits by 2030

DUBAI: The fourth quarter of this year could be a turning point for Saudi Arabia’s tourism industry as the countries that the Kingdom is targeting reach a 70 percent vaccination rate.
Saudi Tourism Authority CEO Fahd Hamidaddin made the prediction at the Arabian Travel Market in Dubai as the Kingdom also reopened its borders on Monday.
Although foreign tourists are still not allowed to travel to the Kingdom, Hamidaddin said earlier on Monday that it was preparing to reopen its borders for inbound travel soon.
Saudi Arabia has opened international tourism offices in major countries including China and Russia and is targeting 28 markets in a global marketing push.
Hamidaddin said international tourism in the country could only boom when other countries also restarted their travel industries — and that this could only be fully considered after they had reached a vaccination rate of 70 percent.
He said that such a vaccination milestone may be reached in the last quarter of the year.
Saudi Arabia opened up the Kingdom to international tourism in September 2019, and has since announced a number of mega projects to attract visitors, including a $530 million fund to develop key destinations across the Kingdom.
Market research firm Euromonitor International estimated in March that inbound tourism spending in Saudi Arabia would reach $25.3 billion by 2025, recovering from the impact of the COVID-19 pandemic.
Saudi domestic tourism exceeded expectations during the pandemic, despite the UN World Tourism Organization (UNWTO) describing 2020 as “the worst year on record” in the history of tourism.
Saudi Arabia is targeting 100 million annual visits by 2030, up from about 40 million a year before the pandemic.
It wants tourism to account for 10 percent of GDP, up from 3 percent, by 2030.

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Abu Dhabi’s ADNOC said to be in early talks with investors ahead of drilling unit IPO

Abu Dhabi’s ADNOC said to be in early talks with investors ahead of drilling unit IPO
Updated 17 May 2021

Abu Dhabi’s ADNOC said to be in early talks with investors ahead of drilling unit IPO

Abu Dhabi’s ADNOC said to be in early talks with investors ahead of drilling unit IPO
  • ADNOC Drilling owns and operates a large fleet of rigs
  • ADNOC is also planning to float Fertiglobe unit

DUBAI: Abu Dhabi National Oil Company (ADNOC) has started virtual meetings with potential investors ahead of the planned initial public offering of its drilling unit, two sources told Reuters.
Banks working on ADNOC Drilling are scheduling calls with local, regional and international institutional investors to sound out appetite for the potential sale, said the sources, declining to be named as the matter is not public.
The meetings are described as an early look engagement, one of the sources said, where the company that is set for a public share sale is introduced and feedback is sourced from investors.
ADNOC, which supplies nearly 3 percent of global oil demand, declined to comment when contacted by Reuters on Monday.
It is planning to take the unit public in the third quarter, one of the sources said previously. The company could raise at least $1 billion from the share sale, the source said.
ADNOC Drilling owns and operates a large fleet of rigs, including 75 onshore rigs, 20 offshore jackup rigs, and 11 well water rigs, according to its website.
The drilling business is critical for ADNOC’s upstream operations, helping the oil company reach its production targets.
ADNOC has invited a handful of international and local banks to take part in the process of the public share sale of ADNOC Drilling, which is due later this month.
ADNOC Chief Executive Sultan Al-Jaber has been the main architect of the transformation strategy the company embarked on more than four years ago, building an investment team to monetise assets and raise funds from international private equity groups.
The group is also planning to float Fertiglobe, a fertilizer joint venture with Dutch-listed chemical producer OCI later this year.


Dubai allows full hotel capacity and concerts, sports events

Dubai allows full hotel capacity and concerts, sports events
Updated 17 May 2021

Dubai allows full hotel capacity and concerts, sports events

Dubai allows full hotel capacity and concerts, sports events
  • The emirate will also allow live entertainment and activities

DUBAI: Dubai’s Supreme Committee of Crisis and Disaster Management on Monday has updated precautionary measures for events and activities.
The revised protocols allow entertainment facilities and venues to have an increased capacity of 70 percent, while hotels can raise their occupancy ceiling to 100 percent.
The emirate will also allow live entertainment and activities in restaurants, cafes and shopping malls for a trial period of one month.
It noted that the latest precautionary measures must be observed, and performers and entertainers should be vaccinated against COVID-19. These updates are effective immediately.
The committee stressed that it remains mandatory for people attending events and activities to put on their face masks and apply physical distancing of two meters.

Dubai has pushed to keep its economy, which relies on international trade and business, open through the pandemic after an initial lockdown.

The emirate is due to host the Expo 2020 world fair from October, hoping to attract millions of overseas visitors.

The UAE has in recent weeks banned entry from India, Bangladesh, Pakistan, Nepal and Sri Lanka to guard against the spread of the highly contagious Indian variant.

– with Reuters


Seera and Klook sign deal to promote Saudi tourism

Seera and Klook sign deal to promote Saudi tourism
Updated 17 May 2021

Seera and Klook sign deal to promote Saudi tourism

Seera and Klook sign deal to promote Saudi tourism
  • The platform will feature tours and activities operated by Discover Saudi, Seera’s destination management company

DUBAI: Regional travel services company Seera Group has partnered with Klook to help international tour operators promote tourism in the Kingdom.
Under the deal, the pair will create a one-stop digital platform with relevant travel content and inventory management solutions for tourism providers in the Kingdom.
These providers will be able to connect with global marketplaces and international tour distributors to promote Saudi tourism.
The platform will feature tours and activities operated by Discover Saudi, Seera’s destination management company.
“For our partners across the Saudi tourism ecosystem, finding smart ways to connect with travelers enhances their ability to offer unique Arabian experiences to everyone eager to explore the destination,” Fahd Hamidaddin, chief executive of the Saudi Tourism Authority, said in a statement.
The deal, announced at the Arabian Travel Market in Dubai, combines Seera’s local knowledge of the tourism sector and Klook’s technological capacity.
It comes as the Kingdom plans to increase inbound tourism in line with its ambitious Vision 2030.


Honeywell deploys tech to combat use of fake COVID-19 respirators in UAE

Honeywell deploys tech to combat use of fake COVID-19 respirators in UAE
Updated 17 May 2021

Honeywell deploys tech to combat use of fake COVID-19 respirators in UAE

Honeywell deploys tech to combat use of fake COVID-19 respirators in UAE
  • Nearly 20 factories selling substandard face masks, disinfectants and hand sanitizers have been uncovered in the UAE

DUBAI: Honeywell said it using digital authentication technology in a bid to tackle the use of fake respirators and masks in the UAE and wider region.
It said that surging demand for personal protective equipment (PPE) has triggered an increase in counterfeiting across the region.
Nearly 20 factories selling substandard face masks, disinfectants and hand sanitizers have been uncovered in the UAE since the outbreak of the virus, it said.
“In response to the growing number of counterfeit PPE products in the Middle East and Africa, we’ve chosen the UAE to be the testing ground for digital authentication technology for our PPE distributed across the region,” said Greg Norton, general manager, fine chemicals and authentication technologies. “This software will not only confirm the authentication of our N95 respirators made in the UAE, it will also help detect counterfeit PPE products to help authorities reduce illicit trade during the pandemic.”
To authenticate the product, the end user scans a digital code embedded in the packaging with their smartphone camera after downloading the Honeywell application for iOS or Android. The software validates the product’s authenticity through a database, letting the end user know it is safe to use and gathers market intelligence data.
Honeywell-branded N95 respirators are produced in the UAE by Strata Manufacturing.