TRY per USD, week to Jan 16. Source: Thomson Reuters
Turkey’s President Recep Tayyip Erdogan has got embroiled in interest rates again – and the country’s currency immediately felt the impact.
Erdogan’s allergy to high interest rates is well known, as is his insistence that there is something out there called “the interest rate lobby” that drives rates up in a bid to enfeeble the Turkish economy. But all the same he was in fine form in a speech on Friday. Read more
The Turkish lira rounded off the week by tumbling to its lowest levels against the dollar for almost a year, amid investor nervousness about
By evening trade in Istanbul the currency had fallen beyond TL2.30 to the US dollar, more than 1 per cent down on the day and the weakest level since January, when the Turkish central bank moved to increase
interest rates – a dramatic shift in policy that at the time halted a
precipitous drop in its value. Read more
With its hefty energy import bill and high inflation, Turkey is an obvious winner from the drop in oil prices, which economists expect to help improve its current account deficit. But will other troubles neutralize the benefit of lower oil prices?
The country’s energy import bill last year of about $50 bn – roughly equivalent to the size of its 12-month running current account deficit – puts Turkey firmly on the right side of the slide in oil prices, which have declined 25 per cent from this year’s peak in June.
But Turkey’s dependence on foreign capital, which makes it particularly sensitive to changes in global liquidity, could offset this advantage. This dependence led Morgan Stanley to put Turkey in its “fragile five” last year. Read more
By Riccardo Puliti of the EBRD
Until recently the Nabucco pipeline, just like the chorus in Verdi’s opera of the same name, was a symbol of freedom. It was designed as an alternative route for large quantities of natural gas coming into Europe, reducing the continent’s dependency on the Soviet-built pipeline system that runs from East to West.
But the Nabucco dream did not become reality, mainly because it would not transport enough gas to make it viable and especially because Turkmenistan, a big producer of natural gas, was not part of the project. However, this vision of independence could yet live on in another guise – but only if there is the political will to drive it forward. Read more
Perhaps only President Recep Tayyip Erdogan of Turkey would exclaim “I am increasingly against the internet every day” in the middle of a private meeting on press freedom.
That indeed is what the outspoken Turkish leader just did, according to the Committee to Protect Journalists (CPI), which met Erdogan in Ankara this week, together with the International Press Institute (IPI). Read more
Turkey is in an uncomfortable place. Amid a general turn away from emerging markets, fuelled by the rise of the dollar and expectations of US rate rises, the Turkish economy is, if not in investors’ crosshairs, close to the centre of concerns.
The lira is skirting seven month lows, undermined by worries about the country’s fundamentals (notably its high current account deficit), its geopolitical position (bordering Iraq and Syria, not to mention the jihadis of Isis) and more besides.
That makes the difference between what appear to be two schools of thought within the Turkish government particularly important. Read more
Poor forward planning and political manipulation of energy prices look likely to leave Turkey facing gas shortages this winter, even before the prospect of regional gas cuts due to the on-going hostilities in Ukraine.
Turkey last week experienced an unexplained drop in pressure in its western import line, through which it receives 14bn cubic metres (bcm) of gas from Russia, or about 30 per cent of Turkish demand. That sparked fears of further cuts during the peak mid winter demand period should a working ceasefire not be concluded.
But Turkey’s gas woes are not confined to one import line through Ukraine. Read more
One of the biggest questions facing Turkey is not so much who is going to win Sunday’s inaugural presidential election – prime minister Recep Tayyip Erdogan is heavily favoured – but what kind of government the country will have afterwards.
If Erdogan does head to the presidential palace later this month, so vacating the premiership, a new government will have to take office-even though he has made clear his ambition to keep running the country. Read more
Here’s an example of what may pass for high finance Turkish style: talk down an asset and then try and nab it for yourself.
This may not be a path that is permitted for non-governmental actors, but then sometimes it seems that all roads lead back to the country’s government, notably its powerful prime minister Recep Tayyip Erdogan.
Last week, he was quoted as lashing out at an Islamic bank in Turkey named Bank Asya. Read more
Turks are divided over the Prime Minister Recep Tayyip Erdogan, according to a new poll conducted by the US think tank Pew Research Center ahead of the country’s first presidential elections.
The survey, carried out in April and May, found a majority of 51 per cent dissatisfied with the direction of the country with only 44 per cent satisfied and an even split on the question of whether Erdogan’s influence has been good or bad with 48 per cent of Turk’s taking either side. Read more
Investors could be forgiven for being confused by the signals coming out of Turkey’s central bank on Thursday.
Governor Erdem Başçi (pictured) suggested that rate cuts were likely to continue. Speaking at a press conference in Ankara, he said the markets were pricing in a cut in the key policy rate of about 50 basis points and that any further interest rate cuts would be “measured”. Read more
Turkey should adopt a “sufficiently restrictive” monetary policy to dampen inflation and balance growth or remain at the mercy of uncertain capital flows, the Organisation for Economic Co-operation and Development (OECD) recommended in a report on Thursday.
The report tells a familiar story: Turkey’s dramatic growth in the 2000s was mainly driven by domestic demand and has led to a large current account deficit and external debt. This leaves the economy vulnerable to turmoil in global financial markets as was seen in 2013 and earlier this year.
But the tightening is unlikely to come soon. Last month Turkey’s central bank opted to cut rates by 75 basis points to 8.75 despite inflation being almost twice the bank’s 5 per cent target.
What is going on with Turkey’s central bank? Why, more specifically, has it just cut its benchmark interest rate by 75 basis points to 8.75 per cent when the latest figures showed inflation just shy of 10 per cent? And why did it do that in the wake of a previous 50 basis point cut in May?
According to the bank’s version of events, inflation is no longer so much of a concern, because of Turkey’s mixture of increased exports, slower domestic demand and a stabilised currency. Read more
Turkey and Azerbaijan have further cemented their close relations with the signing of a $3.29bn credit agreement for the Turkish subsidiary of Azeri state oil company Socar, for the construction of a 10bn tonnes a year oil refinery to be constructed at Aliaga on Turkey’s Aegean coast.
The credit package, formally agreed on Friday, is both the largest single project finance agreement in Turkish history and, at 18 years, the deal with the longest maturity to date. Read more
Central and Eastern European local currency bonds lifted following a widely-anticipated move by the European Central Bank to cut key interest rates in a bid to anchor the eurozone’s tentative economic recovery.
The confirmation of cheaper money across the continent sent investors searching for riskier assets, further pushing down yields on Turkish, Hungarian and Polish bonds which have rallied over the last month. Read more
Not everything in life is always completely and irredeemably bad, even if you happen to be running an emerging economy. In the case of currency devaluations handed to the big emerging markets over the past year, however, the silver lining has not made up for the cloud.
It was a year ago this week that the “taper tantrum” shook emerging markets, after comments from then Fed chairman Ben Bernanke raised fears of the US central bank tightening monetary policy. Exchange rates dropped sharply in the fragile fraternity of emerging markets with flexible currencies – Brazil, India, Indonesia, South Africa and Turkey. However, bad though the turbulence was – and the panic returned for a short while earlier this year – the currency movements should at least have had the benefit of handing those economies’ exports a competitive advantage through a lower exchange rate.
Hopes for an early release of disputed oil pumped from Kurdistan – but held in Turkey – are rising, a person familiar with the issue said. A resolution to a political impasse between the semi-autonomous Kurdistan region and Iraq could free up for sale millions of barrels of oil that have been stockpiled on the Eastern Mediterranean coast since the end of last year.
Oil has been flowing from Kurdistan – sometimes described as ‘the last great oil frontier’ with a potential 50bn barrels in reserves – through a newly-constructed pipeline to the Turkish export terminal of Ceyhan for more than five months. Read more
By Anthony Skinner of Maplecroft
Even before the disaster of Tuesday’s explosion at a mine in western Turkey, questions were being raised about the future of prime minister Recep Tayyip Erdogan. It is yet another example of the volatility that seems to be perpetual in the country.
In recent months, the lira has gone from being one of the worst performing currencies in the world to one of the best. Many investors were reassured by the victory at March’s municipal elections of Erdogan’s centre-right Justice and Development Party (AKP), in the midst of a battle for influence and power with the moderate Islamist Gulen movement. Read more
Turkey has a penchant for plastic. Over the past decade, consumers have gorged themselves on credit cards marketed aggressively by banks. The country now has more than 57m credit cards, up from fewer than 16m in 2002, in a population of 76m people. That expansion helped push the ratio of household debt to disposable income from 4.3 per cent in 2002 to 55 per cent by the end of last year.
Such indebtedness is causing misery: more than 1m people were unable to pay off personal loans or credit cards last year, nearly half as many again as in 2012. Read more
By David O’Byrne of bne in Istanbul
Turkish football is no stranger to empty stadia, with the football authorities regularly ordering matches to be played behind closed doors as punishment for the misbehaviour of fans and players alike. But the April 20 derby match between fierce Istanbul rivals Fenerbahce and Besiktas was different. Read more