Market Watch:  Turkish lira crumbles after S&P warns over Turkey

The beleaguered Turkish lira was crushed on Monday after Standard & Poor’s warned it may downgrade its B+ debt rating on Turkey, reported MarketWatch.


One dollar USDTRY, 2.47% fetched as much as 14.6412 lira, up from 13.8769 lira. The dollar has surged an astronomic 92% against the Turkish currency this year.  Central Bank intervened throughout the day, presumably to defend the TL at 14.00 vs dollar. According to bankers, the Bank sold $1 bn.


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S&P cited the central bank’s cutting of interest rates while inflation has been rising for the negative outlook. “In our view, the current monetary easing and significant Turkish lira depreciation will further weigh on inflation, which could peak at about 25%-30% year-on-year in early 2022. Meanwhile, we project it will also lead to net general government debt increasing by an additional 8% of GDP in 2021, compared with our previous expectation,” the agency said.


The Turkish central bank, pressured by President Tayyip Erdogan, may cut interest rates by another 1 percentage point this week. It’s already cut rates by 4 points since September.


The central bank intervened in the currency market on Monday, after what it called “unhealthy price formations in exchange rates,” which brought the dollar lower but still trading above 14 lira.


The Turkish BIST 100 XU100, 3.48% stock market index rose 3%. Over 2021, the U.S.-listed iShares MSCI Turkey ETF TUR, +1.07% has dropped 25%.


The Turkish woes didn’t extend to Continental Europe, as the Stoxx Europe 600 SXXP, 0.36% advanced 0.5%. Markets are in a holding period between last week’s U.S. inflation data, and this week’s key interest-rate decisions from the Federal Reserve, the Bank of England and the European Central Bank.


Strategists at UBS don’t expect the equity rally to be derailed by inflation fears. They expect global central banks to be adding liquidity through 2022, note markets have already priced in faster tightening by the Fed, and expect inflation pressures to decline next year. “We believe markets can continue take a higher inflation reading in their stride, though additional volatility remains a risk,” they said.


At 15:00 hours Turkish time, President Erdogan began a brain-storming session with economy czar, Central Bank governor and the heads of state lenders. Some analysts expect limited currency controls, while other claim, Erdogan will announce yet another subsidized loan program to stimulate the economy further.


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and and has contributed to the financial daily Referans and the liberal daily Radikal.