Depreciation of the Turkish lira makes it hard for banks-businesses

Depreciation of the Turkish lira makes it hard for banks-businesses

Turkey’s economic staff is in a state of disarray due to the successive depreciation of the Turkish lira against the dollar and the euro, which cause rumours over the possible freezing of foreign currency accounts. Foreign analysts are talking about a possible big crisis, with the government responding that it is war signs from those who want to damage Erdogan.

The rumours stirred up things more and many investors appeared very worried so, the BHDK chairman, Mehmet Ali Akben has been forced to deny it, saying “such rumours have no basis. Not even in the 2001 crisis did this happen, the rumours are of no value.”

Concern at the AKP government headquarters is rising, as 31 days before the presidential election, the devaluation of the Turkish currency in one week has exceeded 10% while cumulatively in one month it has exceeded 18%. Essentially, this is the rate at which the Turks have become poorer.

On Tuesday, the dollar / pound exchange rate fell to 4.84 and the depreciation within 24 hours exceeded 3.5%. The euro / Turkish lira has reached 5.66 and the devaluation in one day has exceeded 3%.

Corporate borrowing and trade deficit

The major problem of the Turkish economy is not the public debt, but the private debt of companies and households that, due to the long-term fixed exchange rate, borrowed in a foreign currency.

An example is the new Istanbul airport, which will be inaugurated next October. The project is self-financed and the construction company borrowed from state-owned banks, along with construction costs and payments to the state, there is a cost of $ 25 billion, which is burdened by every single devaluation.

At the same time, fuel and natural gas imports burden the trade balance, despite the increase in exports. The trade deficit in March 2018 showed an increase of 28%, and in April it is estimated to have exceeded 30%; rating agencies observe that immediate action should be taken.

Erdogan does not want an increase in interest rates

Economists say that in order to contain inflation that has grown to 11% and stop the rise in the trade deficit, the central bank will have to raise interest rates, but Recep Tayyip Erdogan, through successive statements, has made it clear that he does not want something like that.

The Central Bank, so far, has been trying to curb devaluation by selling to the market from foreign exchange reserves. Immediately, Finance Minister Nihat Zeybekci sent a message to the Central Bank, saying “the competent authorities should take the necessary measures.” Economists ask for measures and say Turkey is “a breath ahead the edge of the cliff”.

Analysts warn that if the Central Bank of Turkey does not act urgently, raising interest rates by at least 200 basis points, then the Turkish economy will be “a breath ahead the edge of the cliff”. It is threatened with disorderly adjustment and a great economic slowdown, even with a recession, at a time when Erdogan tries to persuade voters to trust him again.

Turkish government: “It’s a war against Erdogan”

Turkish Deputy Prime Minister Bekir Bozdag argued that by “playing” with the dollar exchange rate, some persons are trying to harm the (Turkish) people and to influence the election result. They are wrong. The people know. With God’s help, however, on June 24 (presidential election date) we will make a new start.”

“The exponential rise in the exchange rate of the Turkish pound is a clear indication of a monetary crisis,” Commerzbank analyst Ulrich Leuchtmann told Bloomberg. “The government refuses to see things as they are at this point of the crisis. It’s also part of the usual development of a crisis”, he added.

Turkey’s foreign borrowing costs are charged almost 5 billion Turkish liras (€ 900m) for every devaluated cent of the currency.

Opposition: “We will hit a wall. Economy sinks”

Republican People’s Party (CHP) candidate Muarrem Ince said “we are ready to hit a wall. The economy sinks. I appeal to President Erdogan to directly change his financial advisers, which give him wrong information.”…. / IBNA