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Reply #13: europe: Turkish lira on the slide [View All]

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xchrom Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-23-11 07:55 AM
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13. europe: Turkish lira on the slide

MONTREAL - The Turkish lira has accelerated its decline against the US dollar, recovering so far only marginally this week from Monday's 1.5% drop, to the level of 1.85 lira to the dollar. This level is also down 4% in the last month and 16% this year, the second-worst performance of all emerging market currencies.

While this depreciation has helped to decrease Turkey's trade deficit, the Central Bank of the Republic of Turkey (CBRT) has published a policy document indicating that it is now concerned with minimizing the impact on inflation. The CBRT decided a month ago to make its rates more flexible, setting then on a daily basis between within an interval running from 5.75% to 12%.

However, it risks finding itself in a difficult situation between the unexpectedly high inflation rate and the weakening domestic and

international environment.

Inflation in October over September was the highest month-on-month rate in nine years, at 3.3%, while year-on-year increased to 7.7%. Year-on-year inflation will probably approach 10% in the first few months of 2012. Last month, the CBRT upgraded its year-end inflation forecast to 8.3% from 6.9%, well above the bank's annual inflation target of 5.5%. Consensus international estimates for Turkish inflation for 2012 hover in the range between 7.5% and 8%.

Statements by Finance Minister Mehmet Simsek suggest less of an anti-inflation focus and more of an accent on maintaining conditions for healthy economic growth. The success of that policy so far led Standard & Poor's in September to raise Turkey's debt rating by two notches, from "BB" to "BBB-" (the lowest investment-grade rating). Turkey's economy grew at an 8.9% rate in 2010 and 11% for the first four months of 2011, although this has slowed to such a degree that the projected rate for the whole of calendar year 2011 is 7.2%, taking also into account the likelihood of a global slowdown.
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