Turkish lira “in for a bumpy ride”

The Turkish Lira has recovered slightly but analysts have warned of a turbulent future as the US threatens to impose further sanctions over Turkey.

The lira rose to 5.8 against the dollar, helped by the $15 billion (£12 billion) investment by Qatar. Earlier this week, the lira reached a record low of 7.23 per dollar.

The US and Turkey have locked heads over the detention of American pastor Andrew Brunson, who has been accused of playing a role in a failed coup in Ankara several years ago.

Donald Trump wrote on Twitter: “Turkey has taken advantage of the United States for many years. They are now holding our wonderful Christian Pastor, who I must now ask to represent our Country as a great patriot hostage. We will pay nothing for the release of an innocent man, but we are cutting back on Turkey!”

The chief emerging markets strategist at SEB, Per Hammarlund, said the rebound in the lira will be temporary.

“The selloff will resume in the absence of a major shift in economic policy-making in Turkey,” he said.

“Turkish finance minister Berat Albayrak continues to reassure investors that Turkey will address its structural problems, but at this stage crisis measures, including sharply higher policy rates, a tightening of fiscal policy and support to troubled sectors such as construction, retail and banking will be key. In sum, the economy is set to slow down sharply.”

“Unless the government introduces an austerity programme within the next weeks, an event such as sharply higher inflation (likely) or a large fine on Halkbank for violating US sanctions on Iran (possible) could trigger a full-blown balance of payments crisis, followed by a banking crisis,” he added.

“So far, the government has shown few signs of being willing to change course, either on economic policy or in its relations with the US. The lira is in for a bumpy ride.”

 

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