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Turkish Lira Weakens Past 7 Despite Growth Upgrades, Policy Normalization

The Turkish lira weakened against its US peer to kick off the trading week, despite several growth updates from major financial institutions and the continuation of policy normalization. Since November, the lira has strengthened about 25%, but…

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The Turkish lira weakened against its US peer to kick off the trading week, despite several growth updates from major financial institutions and the continuation of policy normalization. Since November, the lira has strengthened about 25%, but the USD/TRY currency pair has hit the pause button as the new policymakers defended the actions of their predecessors.

On Monday, Goldman Sachs revised this year’s expectations for economic growth from 4% to 6%. Bank of America also slightly updated its growth projection from 4.1% to 4.6%. This comes only days after Fitch changed its outlook for Turkey’s economy from “negative” to “stable.” These institutions cited monetary policy and Ankara inevitably removing COVID-19 restrictions next month for many parts of the country.

Since the start of 2021, several organizations have turned bullish on Turkey. The International Monetary Fund (IMF) raised its gross domestic product (GDP) forecast from 5% to 6% in 2021. JPMorgan Chase increased its GDP prognostication from 3.3% to 4.6%. HSBC sees the Turkish economy expanding by 4.2% in 2021, double the earlier expectation of 2.1%.

Economic data was mixed on Monday. Capacity utilization slipped to 74.9% in February, down from 75.4% in January. Business confidence edged up to 109.3 this month, up from 107.0 in January. Tourist arrivals plummeted 71.48% year-over-year in January, down from -67.44% in December.

Over the weekend, Finance Minister Lutfi Elvan slammed recent political criticism of his predecessor, Berat Albayrak, arguing that previous policies and transactions were meant to spark financial stability during the coronavirus-induced economic collapse.

Under Albayrak, President Recep Tayyip Erdogan’s son-in-law, saw the central bank’s foreign exchange reserves as low as $40 billion. Since the new leadership was installed, the central bank’s FX holdings have climbed to their highest levels since the summer, topping $50 billion.

After the central bank refrained from raising interest rates again, the lira has tumbled more than 1% against the greenback. But the lira has surged more than 5% year-to-date, with investors optimistic that more orthodox policies will help stabilize the currency and generate economic growth. Financial analysts say that significant rate hikes since November have bought the central bank time before it needs to either tighten or ease policy.

The USD/TRY currency pair rose 1.27% to 7.0518, from an opening of 6.9634, at 14:49 GMT on Monday. The EUR/TRY advanced 1.51% to 8.5670, from an opening of 8.4395.


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