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The Turkish lira weakened to a record after HSBC Bank said the nation risks stagflation as its worst political crisis in a decade hurts consumer sentiment. |
Turkey’s currency, bonds and stocks slid last month after police arrested dozens of suspects in a corruption probe. The lira has lost 8.1% since prosecutors started the investigation on December 17, spurring the central bank to pledge the sale of least $6bn through the end of this month. The regulator’s Monetary Policy Committee convenes on January 21.
“It is obvious that the Turkish economy is heading for stagflation fast,” Fatih Keresteci, a strategist at HSBC in Istanbul, wrote in an e-mailed note on Thursday. “The lira’s depreciation may gain pace if the central bank does not change interest rates at the MPC meeting next week.”
The lira’s weakness will help narrow the current-account deficit in 2014, Finance Minister Mehmet Simsek said at a press conference in Ankara on Wednesday. The deficit widened by 28% to $56bn during the first 11 months of 2013.
“The lira, despite the sharp fall, is not clearly undervalued, and we expect depreciation pressure to persist,” Barclays analysts including Christian Keller and Durukal Gun in London wrote in an e-mailed note on Wednesday. “Crucially, the continued political uncertainty seems to have made households turn cautious on Turkish lira,” Barclays said, lowering its forecast for the next 12 months to 2.35 per dollar from 2.14.
Turkish savers added about $20bn in foreign-currency deposits in the second half of last year, pushing the lira to fresh lows as the conflict between the government and followers of US-based cleric Fethullah Gulen deepened.
Central Bank governor Erdem Basci has refrained from raising interest rates to avoid choking economic growth. Statements from ministers signal the policy needs to be changed, HSBC’s Keresteci said, citing Simsek’s comments. “This shows the serious gap between the market perceptions and that of the economy authorities,” he said.
Deutsche Bank expects rates to remain the same in January, Henrik Gullberg, a London-based currency strategist at the bank, wrote in e-mailed comments. The lira may weaken to between 2.25 and 2.30 per dollar in two to three weeks, according to Gullberg.