Daily Management Review

Recovery Continues For Turkish Lira Even As Its As Finance Chief Tries To Calm Markets


08/17/2018




Recovery Continues For Turkish Lira Even As Its As Finance Chief Tries To Calm Markets
Just before a scheduled conference call between the finance minister of Turkey and international investors. The country’s falling currency lira continued on its recovery journey providing some relief to one and many.
 
There was a rise of 2.5 per cent in the price of the currency against the US dollar at 5.8 liras for a dollar. The lira started to fall steeply following a diplomatic spat between Turkey and the US last week and the currency touched a record low of 72. Liras against a dollar on Monday. The events sent shivers throughout the emerging markets. Despite the upswing in the currency, its current value is down 20 per cent to what it was a month ago. 
 
There have been a number of measures that have been taken by the Turkish authorities in response to the sudden and dramatic drop in the lira. The measures have underwhelmed analysts. A promise to inject more liquidity in the market was made by the central bank of the country on Monday and it also announced that lira and foreign currency reserve requirements would be cut down to provide some easing to the situation. but the central bank did not raise interest rates to bring down rising inflation as had been expected to be done by many analysts. But Turkey’s president Recep Tayyip Erdoğan is strictly opposed to raising interest rates and which is why nothing has been done by the central bank, claim many analysts. 
 
The banks in Turkey were imposed with new restrictions by the Turkish financial regulators on Wednesday which essentially has made it made much harder and much more expensive to “short” or to bet against the lira by investors. There was also some relief in the markets after the announcement that loans worth $15 billion would be granted by Qatar in the banking industry in Turkey to pep up the dwindling finances of the sector.
 
 There have also been talks about a possible control on the capital market and a possible financial bailout by the International Monetary Fund. 
 
There can be a number of measures which can be taken by the Turkish authorities in order to revive confidence of the markets in the economy, said Holger Schmieding, an economist at German investment bank Berenberg. Such measures according to Schmieding could include making the central bank absolutely independent from the government and the president, implementing an adequate fiscal policy which could also include reduction in government spending. Measures can also include appointing central bankers and a finance minister who can stand up against political pressure. There was also a suggestion of fixing its degraded relationships with the EU and the US.
 
Schmieding added: “With a swift and deft policy adjustment, Turkey may still get away with a period of below-trend growth instead of a recession. So far, Turkey does not seem to be changing its policies fast enough, though. As a result, the risk is mounting that the Turkish economy may contract for a while.”
 
(Source:www.theguardian.com)






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