Having talked it up, they look on helplessly

With the Turkish lira diminishing in value day by day, eyes have turned to the Central Bank and government, who speak of the necessary measures being taken and maintain their silence. But, no comment has come from either. Economist Enver Erkan said, “If no move comes from the Central Bank, we will probably see an exchange rate movement that will settle at above 4.60.”

 Increasing domestic and foreign risk continued to affect markets yesterday. The dollar exchange rate rose to an all-time high of 4.5995. The euro rose to 5.4058 lira and Sterling to 6.1312 lira. With the dollar continuing to strengthen globally, the Turkish lira was the currency that decreased in value the most against the dollar from among other developing country currencies. The Turkish lira’s fall against the dollar exceeded 2% in the course of the day. Other developing country’s currencies, conversely, underwent slight falls and rises against the dollar. With the expectation of the US Federal Reserve increasing interest rates another two times this year creating a firm upward trend in the dollar, the dollar index reached a fresh five-month high at 93.86. On the other hand, the respite in the trade war between the US and China and attempts to create a coalition in Italy increased risk aversion to developing countries. The Turkish market was the market to be most affected by heightened risk aversion due to increasing political risk domestically on account of the early election, the rising current account deficit and the Central Bank’s failure to react to the increase in the exchange rate and inflation.

 New fear 4.60

 Market interest rates also rose as interest rates hovered above 3% in the US and out of concerns that pre-election expenditure in Turkey will put pressure on the budget. The compound interest rate on the ten-year bond rose above 15%. Bankers have pointed to a need for those managing the economy and the Central Bank to take concrete steps to instil confidence. GCM Securities Research Expert Enver Erkan, noting that with the Central Bank apparently inactive the lira was seen to reach ever lower levels, said, “Without steps being taken domestically to strengthen the Turkish lira, continued selling in the US treasury market will manifest itself in an increased exchange rate. If no move comes from the Central Bank, the Turkish lira will continue to lose value. We will probably see an exchange rate movement that will settle at above 4.60.” Bluebay strategist from London, Timothy Ash, in turn, pointing to the Monetary Policy Board meeting that the Central Bank will hold on 7 June, commented, “It would appear that the Central Bank is not going to hold a meeting before 7 June. The basic concern for foreign investors is whether the Turkish economy is overheating or monetary policy is appropriate.”

 No lasting optimism

 The Central Bank, having taken a whole host of measures aimed at foreign exchange liquidity following continued concern on the markets, made a statement last week that, “The necessary steps will be taken.” However, the comment, interpreted on the markets as the Central Bank’s “oral intervention” to show its concern, brought no lasting optimism. The loss in the value of the Turkish lira was also accelerated by President Tayyip Erdoğan’s comments that following the election he would play a more effective role in monetary policy as president. On the other hand, markets had their eye on the lists of parliamentary candidates for the election slated for 24 June.

 Turkish lira fell most

 Turkish lira -2.2%

South African rand +0.1%

Mexican peso -0.1%

Russian rouble -0.5%

Indian rupee +0.6%

 Reasons for the record

 1. Widening current account deficit

2. Political risks

3. Central Bank’s stance

4. Rising interest rates in the US

5. Increasing risk aversion

 Gold soars, too

 Gold, underpinned by a rising dollar, saw an all-time high with a gram price of 189.38. 24-carat gold closed at 185 lira on Friday. With a quarter of gold selling at 314 lira in the Covered Bazaar, republic gold coins found buyers at 1274 lira.

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