Value of Turkish lira to increase: economist

Lira value set to rise to 2.02 TL/$ due to signs of better external trade balance, says expert

Lira value set to rise to 2.02 TL/$ due to signs of better external trade balance, says expert

ANKARA – The value of the lira is expected to increase to about 2.02 TL/$ after inflation peaked in June and Turkey's external trade balance showed signs of improvement, a senior economist has said.

The lira’s recent plunge in January was widely seen to have endangered the Turkish economy, which is heavily dependent on dollar- and euro-pegged transactions and loans for the country’s everyday business.

The lira tumbled to almost 2.4 to the dollar and 3.2345 to the euro in the first month of the year.

But a rise will have broad implications for the national economy, affecting Turkish citizens' lives in terms of cheap imports and low interest rates.

Bora Tamer Yilmaz, an economist with the Turkey-based Ziraat investment house, said on Tuesday: “We are expecting the lira to gain in value against the US dollar towards 2.02, which we estimate as a fair value..."

"This process may happen in summer months once inflation peaks in May and the external balance continues to improve significantly."

- Direct intervention

Turkey's Central Bank announced in January that it would intervene in the foreign exchange market by selling dollars after the Turkish lira hit another all-time low against the US dollar that month.

The bank ploughed at least US$3 billion into the foreign exchange market to shore up the currency, which had been hitting record lows almost daily during January.

The move was the Central Bank's first direct intervention in foreign exchange rates in two years.

“Regarding short term dynamics - coming off from 2.39 highs recorded in late January, the lira broke out of a bearish ascending triangle last Thursday when the central bank announced the rate decision,” Yilmaz said.

“Due to market chatter before the rate decision, the lira was priced at the ceiling of the triangle (2.1503) ready to break higher had Turkish central bank cut rates or sent out a dovish message."

"Once the statement made public that rates were on hold - and the tone of the statement was quite hawkish, maintaining a tight stance on the policy front - then so the lira broke lower in line with technical expectations, instead of losing further value.”

- 'Unhealthy prices'

He added: "We still believe the lira's value against the dollar's 2.1253 serves as the imminent support level. In fact on Thursday Lira was moving towards this level. News coming out of Ukraine reversed the gains following the central bank´s meeting, and the lira lost some ground towards 2.14. Today’s increased risk-appetite helped it resume its expected path, pushing it higher against the USD."

Yilmaz added that, following Turkish central bank governor Erdem Basci’s remarks during a press conference after the publication of quarterly inflation report due on Wednesday, the lira may strengthen further towards its next target of 2.0956.

In a statement issued on January 23, the Central Bank said it was intervening due to "unhealthy price levels in foreign exchange rates".

But the bank’s first unscheduled currency interventions in more than two years failed to stem the lira’s slide.

It later called an interim meeting with its Monetary Policy Committee on January 28, following a sharp decline in the Turkish lira against the US dollar and the euro.

The bank then more than doubled its borrowing rate from 3.5 percent to 8 percent and raised the lending rate from 7.75 percent to 12 percent.

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