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Economists are currently forecasting a currency crisis for Turkey beginning as early as late May to June. This will force the country to adopt capital controls, although the government recently issued a statement claiming that this could not happen.
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| Erdogan is pressuring central bank to cut rates. |
The Turkish lira has fallen to 9.75 to the euro at this writing, close to a record low. The lira is at 8.33 to the dollar; the record low is 8.53. The British pound is at 11.44 to the countryโs currency.
Goldman Sachs has cut its 2021 economic growth forecast for Turkey to 3.5 per cent from 5.5 per cent before the overhaul, and also lowered its current account deficit prediction to 1.5 per cent of GDP from 3.5 per cent.
Economists are currently forecasting a currency crisis for Turkey beginning as early as late May to June. This will force the country to adopt capital controls, although the government recently issued a statement claiming that this could not happen.
The most recent drop for the Turkish lira was driven by President Recep Tayyip Erdoganโs replacement of Murat Cetinkaya, the former chief executive of Borsa Istanbul group who had been serving as a deputy governor at the bank since August 2019. This followed the replacement of the governor Naci Agbal on March 20, who had proven too hawkish on interest rates.
Nonetheless, sources in Ankara report that the Turkish central bank intends to cut interest rates sharply at its April 15 policy meeting. Inflation is currently at about 16 per cent in Turkey, and the prices of food, electricity and other necessities have risen beyond the means of nearly 20 per cent of the population.
Goldman Sachs expects Turkish inflation to rise to 18 per cent in April after the ousting of the central bank governor sparked a lira selloff this month, the global investment bank said in a note released on Tuesday.
Goldman said that the central bank, under new chief Sahap Kavcioglu, should not cut interest rates until the fourth quarter given the 13 per cent lira depreciation since he was appointed.
Kavcioglu gave an interview to Bloomberg last week in which he would not commit to either raising interest rates or cutting them. But pressure from Erdogan, along with that of the nationalist MHP party which is his partner in government, is expected to force a rate cut.
โThe main risk to our forecasts is that the authorities may push for growth with premature rate cuts or an increase in lending,โ Goldman said in the note.
REUTERS
