Turkish Lira Hurt by Decrease in Global Investment, C/A Deficit and Monetary Precautions

The decrease in global investor appetite for emerging market assets, concerns over a surging current account deficit and precautions against bank lending are continuing to hurt the Turkish Lira.

The Turkish currency was trading at above 1.64 per dollar at 4:50 p.m. Monday, while the euro, which has been losing ground against the greenback, also advanced to over 2.33 liras. Europe’s troubled single currency has gained more than 12 percent against the lira since the start of the year, while the dollar’s gain against the Turkish currency in the same period has been 5.6 percent. Since June 9, the U.S. dollar has appreciated 4.5 percent against the lira.

Turkey’s foreign currency basket, which consists of 0.5 euro and $0.5, has appreciated 18 percent against the lira in the past seven months, reaching 1.98 lira.

“This is a level that has not been seen since March 2009, when the global economic crisis hurt Turkey,” said Akbank economists in a research note. “If the loss in the value of the lira creates upward pressure on inflation, the Turkish Central Bank could decrease the amount it buys in foreign currency auctions.”

Foreign currency reserves that are at $93.8 billion are providing ample room for maneuver for the Central Bank, Akbank economists said, adding that the recent depreciation in oil prices would have a positive effect on the current account deficit.

Meanwhile, weekly data released Monday showed that precautions by regulators against loan expansion had not shown their effect yet.

Loans distributed by banks rose by 0.8 percent on a weekly basis as of June 17, reaching 613.4 billion liras, according to data from the Banking Regulation and Supervision Agency.

The rise brings annual credit expansion to 36.4 percent, way above the government’s target of 25 percent.

June 27, 2011

SOURCE: TURKISH DAILY NEWS