Turkish gov’t seeking ways to ease markets amid lira’s plunge

ANKARA/ISTANBUL

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Ankara has been seeking ways to calm the markets as the Turkish Lira has plunged to historic lows in recent weeks amid a potential U.S. interest rate hike pushing the dollar to multi-year highs and concerns about political pressure on Turkey’s Central Bank.

Leading figures of the government have now made statements underlying the independence of the Central Bank after weeks in the dramatic fall of the country’s currency.

The first high-level economy summit was made under the leadership of Prime Minister Ahmet Davutoğlu with leading economy-related ministers and Central Bank Gov. Erdem Başçı on March 10.

After an eight-hour meeting, a statement was released late March 10 by the Prime Ministry, emphasizing the need for growth and the independence of the Central Bank.

“Turkey’s government is working on measures to boost industrial production, employment and companies’ capital structure as it seeks to improve growth, and will introduce the package soon,” said the statement.

“The Central Bank, which is independent to use its tools, has been taking the required measures when necessary in line with its monetary policy targets,” added the statement.

Economy Minister Nihat Zeybekci, one of the ministers who attended in the meeting at the Prime Ministry, said March 11 the Central Bank was fully independent. Deputy PM Numan Kurtulmuş also said the Turkish economy had solid macroeconomic foundations, meaning there was no reason to worry about the economy.

Fluctuating markets are in need of seeing President Recep Tayyip Erdoğan make peace with Başçı, according to many analysts.

They both had a scheduled meeting on March 11 to assess the latest developments in the Turkish economy, as well as the global economy. Deputy PM Ali Babacan was also expected to attend the meeting.

Erdoğan’s demands for a sharp rate cut to boost economic growth before a June election, even though inflation remains high, have helped to send the lira to record lows and raised concern about the bank’s independence, according to analysts.

The lira has been down around 12 percent against the dollar since an announcement of an inflation report by the Central Bank at the end of January.

The Central Bank made slight rate cuts, saying its strong need to see the inflation to decrease, yet the political figures grilled the bank for its rate policy throughout February.

Unable to raise rates to defend the Turkish currency, Başçı has resorted to tweaking policy on the margins to try to boost dollar liquidity, with limited success.

Turkey’s lira, South Africa’s rand and Brazil’s real suffered some of the steepest losses in the recent emerging-market rout. Their peers in the so-called fragile five, India and Indonesia, escaped with less damage, as Reuters reported.

The five countries got their name in 2013, as hints emerged that the Fed would end its easy-money policy. In the recent emerging-market sell-off, Brazil has lost as much as 15 percent and Turkey 11.5 percent since the start of the year.

Sentiment toward the lira was finally boosted on March 11 by data showing a lower-than-expected current account deficit in January, and the optimism over a rapprochement between Erdoğan and the Central Bank.

“When Erdoğan finally meets Başçı, Babacan et al, he needs to signal some kind of peace has been called, and let them get on with their jobs,” said Timothy Ash, head of emerging markets research at Standard Bank in London, as quoted by Reuters.

“Confirming Başçı in office for another term would go some way to easing market concern, albeit [I’m] not sure whether Başçı would want another term in this environment,” he added.