Turkish Lira Extends Slide As Investors Brace for April Policy Meeting

The Turkish lira weakened against the US dollar and the euro to kick off the trading week, flirting with 8.19 and 9.65, respectively. Despite piling onto its losses from the last week, the lira’s descent appears to have somewhat eased. Foreign investors have seemingly lost a lot of confidence in Ankara, but the leadership is urging everyone to calm down and adopt a wait-and-see approach.

In perhaps his first interview with western media, new central bank Governor Sahap Kavcioglu provided written emailed answers to Bloomberg News over the weekend.
Kavcioglu, the university banking professor who replaced Naci Agbal at the helm of the central bank, refused to comment on his predecessor. Instead, he discussed “the new period” and noted that all data and considerations would be monitored during next month’s Monetary Policy Committee (MPC) meeting.
Because he was appointed for sharing President Recep Tayyip Erdogan‘s economic policies, global financial markets are anticipating full-blown easing. But he told the business news network that investors should not take a cut to interest rates for granted.

I do not approve a prejudiced approach to MPC decisions in April or the following months, that a rate cut will be delivered immediately.

In the new period, we will continue to make our decisions with a corporate monetary policy perspective to ensure a permanent fall in inflation. In this respect, we will also monitor the effects of the policy steps taken so far.

He also echoed Finance Minister Lutfi Elvan’s remarks that Ankara “will adhere to the floating exchange rate regime as stated in the Monetary and Exchange Rate Policy document, and exchange rates will be determined by supply and demand balance under free market conditions.” Kavcioglu will maintain the objective of increasing the institution’s foreign exchange reserves, which have remained above $50 billion for about ten weeks.
Last week, the president explained that foreign investors should not lose faith in Turkey, adding that citizens transfer their gold and forex holdings into lira-denominated assets.

I call on foreign investors who invest in our country to trust Turkey’s power and potential. The fluctuations of the past few days most definitely do not reflect the fundamentals of Turkey’s economy, real dynamics, potential or its tomorrow.

But while these judicious comments are meant to reassure the market, Fitch Ratings believes the cat has been let out of the bag and everyone is anticipating a return to “looser and less orthodox” monetary policy. The agency thinks the decision to oust Agbal for Kavcioglu raises the country’s inflation and external financing risks.
Douglas Winslow, the director at Fitch’s sovereign team that covers Turkey, told Reuters:

The clearest implication is it reinforces President Erdogan’s opposition to high interest rates in the context of his unorthodox views on their link with inflation — further damaging monetary policy credibility.

We didn’t expect such a move so early in (Agbal’s) term because of his previous relationship with President Erdogan, and the fact that since taking office in November there had been a partial lira recovery and stabilisation of FX reserves.

Fitch currently maintains a stable BB- “junk” rating on Turkey.
On the data front, business confidence climbed to 110.8 in March, up from 109.3 in February. Capacity utilization dipped from 74.9% in February to 74.7% this month.
The USD/TRY currency pair rose 0.58% to 8.1873, from an opening of 8.1317, at 14:33 GMT on Monday. The EUR/TRY advanced 0.75% to 9.6432, from an opening of 9.6153.
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Original from: www.earnforex.com