Turkish central bank struggles to lift lira off lows

Updated 12 March 2015
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Turkish central bank struggles to lift lira off lows

ANKARA/ISTANBUL: Efforts by Turkey's central bank to defend the lira did little to lift it off record
lows on Tuesday, outweighed by a globally strong dollar and concern about President Tayyip Erdogan's intervention in monetary policy.
In a complex series of steps, the bank said it would adjust its reserve requirements — used to control the amount of dollars in the market — to temporarily boost forex liquidity by some $1.5 billion over the coming weeks.
The lira weakened to 2.6455 to the dollar by 1155 GMT, just shy of a record low hit last Friday, partly as expectations of a US interest rate hike pushed the dollar to multi-year highs.
The lira has fallen around 12 percent against the dollar this year, and was the worst-performing emerging market currency against the greenback on Tuesday, according to Reuters data.
Its falls have been exacerbated by Erdogan's demands for sharp interest rate cuts to boost growth ahead of a June election. That has tied the central bank's hands, leaving it unable to contemplate a rate hike and trying instead to defend the currency with policy adjustments on the margins.
"In this environment countries don't need to give investors any excuse to sell," said Timothy Ash, head of emerging markets research at Standard Bank in London.
"In Turkey's case we have an administration that thinks it is cleverer than everyone else, and the market ... Turkey needs to get back to plain vanilla policy (and) the government needs to back off from the central bank," he wrote in a note.
There is little immediate sign of that happening.
Central Bank Gov. Erdem Basci will brief Erdogan on Wednesday on the latest developments, and is due to meet with Prime Minister Ahmet Davutoglu and nine cabinet ministers later on Tuesday.
Economy Minister Nihat Zeybekci, one of the cabinet's most vocal critics of the central bank, said on Tuesday it should have cut interest rates before its last meeting in late February.
The cost of insuring exposure to Turkish debt rose to 11-month highs, with Turkey's 5-year credit default swaps (CDS) rising by 227 basis points, bankers said.
The benchmark 10-year government bond yield rose to 8.36 percent from 8.28 percent on Monday, while the main Istanbul stock index was down more than 2.7 percent, lagging emerging markets peers.


Daimler vows to cut costs after one-offs bring loss

Updated 1 min 11 sec ago
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Daimler vows to cut costs after one-offs bring loss

  • Company reduced its sales outlook for Mercedes-Benz cars and said €4.2 billion in one-off expenses hit earnings
  • Daimler pledged to cut costs in response but provided few details
FRANKFURT: Luxury carmaker Daimler said it would intensify cost cuts after legal risks for diesel-related issues and the cost of replacing Takata airbags triggered $1.74 billion (€1.56 billion) loss before interest and taxes in the second quarter.
The company reduced its sales outlook for Mercedes-Benz cars and said €4.2 billion in one-off expenses hit earnings, mainly at the cars and vans divisions, contributing to an operating loss at group level, compared with a €2.6 billion profit in the second quarter last year.
“We can’t help but note that this is the lowest level of money in the bank since the depths of the financial crisis,” Bernstein Research analyst Max Warburton said. “Raising Daimler’s operating performance is not going to be a quick fix.”
Daimler pledged to cut costs in response but provided few details under new Chief Executive Ola Kaellenius, who took up the top job two months ago.
“In general, we are intensifying the group-wide performance programs and reviewing our product portfolio in order to safeguard future success,” Kaellenius said on Wednesday.
Rival Aston Martin also announced cost cuts and its shares tumbled after it lowered its outlook for operating profit on slowing demand, while peer Peugeot bucked the industry downturn with a sharp increase in first-half profit.
Daimler will provide details about potential cost cuts and its strategy on November 14 during its capital markets day.
Earlier this month, the Stuttgart-based carmaker had given an initial outline of earnings in what amounted to its fourth profit warning in 13 months, saying its 2019 group EBIT would be “significantly” lower than last year.
The Stuttgart-based carmaker said it now expects unit sales for Mercedes-Benz Cars to be at the prior-year level, revising its previous forecast of achieving a slight increase, following a sharp slowdown in demand in China.
Daimler said on Tuesday that China’s Beijing Automotive Group Co. Ltd. has bought a 5 percent stake in the company, cementing their long-standing alliance.
Unblocking supplier bottlenecks which have delayed production of Mercedes-Benz GLE and GLS models will help push sales of luxury cars in the second half of 2019, Kaellenius said.
“Daimler is blaming supplier bottlenecks and quality issues pretty much across all divisions for its poor financial performance. These are certainly not external factors outside of management’s control,” analysts at Evercore ISI said.
Daimler made a provision of €2.6 billion to cover diesel-related expenses in the first half of 2019 after German regulator KBA ordered a recall of 60,000 Mercedes-Benz GLK models, claiming the vehicles made use of illegal engine software. Daimler has appealed the KBA ruling.
The carmaker declined to break down in detail how much of the amount was allocated for recalls, updates and potential fines and litigation.
Daimler’s diesel pollution levels are being investigated by prosecutors in Stuttgart, Germany, where it is headquartered, as well as by the US Environmental Protection Agency and the California Air Resources Board.
Pressure to clean up combustion engines has come at a time when the industry has to invest heavily in electric and self-driving vehicles, and cope with slowing growth in China, weak markets in Europe and a rise in global trade tensions.
Passenger car sales slowed 3 percent during the quarter and the return on sales at Mercedes-Benz Cars swung to a negative 3 percent in the quarter, down from 8.4 percent in the year-earlier period.