Strategic observation

Spotlight: Turkey acts to regain investors confidence, save embattled currency

2018-05-30 06:15:40 (Beijing Time)


ANKARA, May 29 (Xinhua) -- Turkey is working hard to end the volatility that has sent its currency into a tailspin and regain investors' confidence.

The country takes long overdue measures on monetary policies before crucial general elections in June, but risks still persist, said local analysts.

The lira, which has plunged about 20 percent against the U.S. dollar before paring losses, hit a low of 4.93 lira against one dollar on May 23.

Turkey's central bank then raised its top interest rate by three percentage points to 16.5 percent in an attempt to help stabilize the currency.

The move had at first a modest effect on the embattled lira but managed to prevent further depreciation.

On Monday, the central bank announced further measures to calm financial markets by simplifying its rate regime, setting its primary policy rate at 16.5 percent, the same as the late liquidity window lending rate, causing the lira to rally. The move has been welcomed by experts and triggered a leap in the lira.

The absence of a single policy rate has been criticized by investors who say it creates policy uncertainty.

"This is indeed a very good decision. The central bank is showing investors that it's taking firm action and do not simply assign in assurances on paper," said chief economist Nilufer Sezgin at Istanbul-based Is Asset Management to Xinhua.

Turkish Deputy Prime Minister Mehmet Simsek and Turkish Central Bank Governor Murat Cetinkaya have held crucial talks with investors and fund managers in London on Monday and Tuesday, at a time when confidence in Turkey has taken a severe blow amid concerns that its economy is overheating, plagued with a double-digit inflation, unemployment and a widening budget deficit.

Simsek tweeted Monday that he and Cetinkaya would meet 90 portfolio managers, bank executives and analysts in groups during the visit.

"We are making intensive efforts for Turkey's positive decoupling with our decisive policy steps, good communication and strong long-term story," Simsek wrote.

"The mission aims to reassure investors that Turkey ... will not deflect from fiscal discipline even though some loosening was made by the government in public expenditure ahead of polls," said Sezgin.

However, the economic expert also warned that Turkey now "does not have any more error margin left" and that overcoming the effects of the dramatic sell-off of the Turkish currency in recent weeks "will take time."

The impending legislative and presidential elections reportedly worry investors and cause a dramatic fall of the lira against the U.S. dollar and the euro.

Turkish President Recep Tayyip Erdogan called on fellow citizens to convert foreign currency savings into lira on Saturday, less than a month before Turkey heads to the polls on June 24.

Ankara has repeatedly said the lira's fall was a "conspiracy" by unnamed foreign powers to weaken Turkey ahead of the crucial elections.

The central bank's rate hike was "very powerful," Simsek said in an interview with private NTV news channel, pointing out that the central bank would deliver additional measures if needed, marking a more conventional approach to the monetary policy.

The rate hike, which helped reduce some of the losses, was followed up by the central bank's announcement on Friday that it would allow some foreign currency debt to be repaid at fixed lira rates.

Economists argue that while Turkey is under the same strain as other emerging markets since the start of the year, being hurt by a broader investors' move to take money out of emerging markets and into the United States, there is also some major risks, like a 450 billion dollars external foreign debt and a currency account deficit.

Analysts said that failed military coup in 2016, followed by a state of emergency and a series of feuds with its traditional allies have made Turkey's economy vulnerable.

"What the government should immediately do is to go forth with structural reforms and announce that Turkey is returning to normal. (It should) abandon the state of emergency and restore ties with international partners," senior economic analyst Enver Aykan told Xinhua.