Fitch expects increased risks with the Turkish lira reaching a new...
Turkey has not tightened policy enough to support the lira, which has hit a new record low, on Friday, a senior analyst at Fitch Ratings said, and that the country’s foreign exchange reserves and external financing remain weaknesses.
Douglas Winslow, the agency’s chief Turkey analyst, told Reuters that more pressure from the currency, double-digit inflation and the erosion of foreign exchange reserves would “significantly increase the chances” of raising official interest rates by the end of the year.
The pound fell by as much as 1.7% to a record low of 8.56 against the dollar, despite the weakening of the US currency; Votes are still being counted in the US elections, which were held on Tuesday, and are witnessing an intense approach. And the lira recorded 8.52 during trading.
Turkey’s bilateral relations with the United States may suffer if the Democratic candidate, Joe Biden, advances and becomes president, adding to the pressure on the lira, which has fallen more than 30 percent since the beginning of this year and about ten percent in the past two weeks only.
The Turkish central bank raised interest rates to 10.25% in September, and may tighten policy again to prevent a devaluation of the currency and combat inflation that is lurking around 12%.
But Winslow, director of Fitch’s sovereign affairs team, said in an email that the credit tightening in recent months “has not been sufficient to reverse the downward trend in the lira and (to a lesser extent) foreign exchange reserves.”
Turkey is rated high risk by the three major credit rating agencies. While Turkey’s BB- rating is the highest, it revised the outlook to “negative” from “stable” in August, indicating erosion of foreign exchange reserves and weak monetary policy credibility.
Winslow said that the central bank has “limited independence” from political pressure to lower interest rates, and a “record of slow response to events,” which raises the risks that a loose policy could fuel external imbalances and market instability.
Douglas Winslow, the agency’s chief Turkey analyst, told Reuters that more pressure from the currency, double-digit inflation and the erosion of foreign exchange reserves would “significantly increase the chances” of raising official interest rates by the end of the year.
The pound fell by as much as 1.7% to a record low of 8.56 against the dollar, despite the weakening of the US currency; Votes are still being counted in the US elections, which were held on Tuesday, and are witnessing an intense approach. And the lira recorded 8.52 during trading.
Turkey’s bilateral relations with the United States may suffer if the Democratic candidate, Joe Biden, advances and becomes president, adding to the pressure on the lira, which has fallen more than 30 percent since the beginning of this year and about ten percent in the past two weeks only.
The Turkish central bank raised interest rates to 10.25% in September, and may tighten policy again to prevent a devaluation of the currency and combat inflation that is lurking around 12%.
But Winslow, director of Fitch’s sovereign affairs team, said in an email that the credit tightening in recent months “has not been sufficient to reverse the downward trend in the lira and (to a lesser extent) foreign exchange reserves.”
Turkey is rated high risk by the three major credit rating agencies. While Turkey’s BB- rating is the highest, it revised the outlook to “negative” from “stable” in August, indicating erosion of foreign exchange reserves and weak monetary policy credibility.
Winslow said that the central bank has “limited independence” from political pressure to lower interest rates, and a “record of slow response to events,” which raises the risks that a loose policy could fuel external imbalances and market instability.
(Reuters)
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