Turkey set to raise rates, balancing lira and growth concerns

The Turkish Central Bank is worried about economic slowdown. (Reuters)
Updated 12 September 2018
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Turkey set to raise rates, balancing lira and growth concerns

  • The lira has slumped 40 percent against the dollar this year, weakened partly by unease over President Recep Tayyip Erdogan’s influence on monetary policy
  • The central bank confounded expectations for a rate increase at its July meeting, fueling the belief it is under pressure from Erdogan

ISTANBUL: The Turkish Central Bank is expected to raise interest rates on Thursday to calm a currency crisis, but forecasts for the scale of the increase vary widely as the bank balances concerns over lira weakness with worries about an economic slowdown.
The lira has slumped 40 percent against the dollar this year, weakened by unease over President Recep Tayyip Erdogan’s influence on monetary policy and more recently a bitter row with the US that has unsettled investors.
The central bank confounded expectations for a rate increase at its July meeting, fueling the belief it is under pressure from Erdogan, who has called interest rates the “mother and father of all evil” and frequently urges they be kept low.
But after inflation surged in August to its highest in nearly 15 years, the central bank said that it would take action against “significant risks” to price stability — a rare move to soothe financial markets.
It said its monetary stance will be adjusted at Thursday’s policy committee meeting. Analysts saw this as pointing to an increase in the benchmark one-week repo rate, now 17.75 percent — less than the annual inflation rate of 17.9 percent.
Phoenix Kalen, strategist at Societe Generale, forecast the repo rate would be raised to 20.75 percent and would be restored as the main policy instrument after a period during which the effective funding rate has been 19.25 percent.
“Although this amount of monetary tightening may disappoint market expectations and spark renewed TRY weakness, the decision would reflect the prioritization of Turkish authorities’ concerns regarding a rapidly decelerating economy,” Kalen said.
Turkey’s economic growth slowed to 5.2 percent in the second quarter, data showed this week, and the economy is expected to slow again in the second half.
In a Reuters poll, all 11 economists predicted the benchmark one-week repo rate would be raised.
The average forecast was to 22 percent, but predictions ranged from an increase of 225 basis points to 725 basis points.


Gulf defense spending ‘to top $110bn by 2023’

Updated 15 February 2019
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Gulf defense spending ‘to top $110bn by 2023’

  • Saudi Arabia and UAE initiatives ‘driving forward industrial defense capabilities’
  • Budgets are increasing as countries pursue modernization of equipment and expansion of their current capabilities

LONDON: Defense spending by Gulf Arab states is expected to rise to more than $110 billion by 2023, driven partly by localized military initiatives by Saudi Arabia and the UAE, a report has found.

Budgets are increasing as countries pursue the modernization of equipment and expansion of their current capabilities, according to a report by analytics firm Jane’s by IHS Markit.

Military expenditure in the Gulf will increase from $82.33 billion in 2013 to an estimated $103.01 billion in 2019, and is forecast to continue trending upward to $110.86 billion in 2023.

“Falling energy revenues between 2014 and 2016 led to some major procurement projects being delayed as governments reigned in budget deficits,” said Charles Forrester, senior defense industry analyst at Jane’s.

“However, defense was generally protected from the worst of the spending cuts due to regional security concerns and budgets are now growing again.”

Major deals in the region have included Eurofighter Typhoon purchases by countries including Saudi Arabia and Kuwait.

Saudi Arabia is also looking to “localize” 50 percent of total government military spending in the Kingdom by 2030, and in 2017 announced the launch of the state-owned military industrial company Saudi Arabia Military Industries.

Forrester said such moves will boost the ability for Gulf countries to start exporting, rather than purely importing defense equipment.

“Within the defense sector, the establishment of Saudi Arabia Military Industries (SAMI) in 2017 and consolidation of the UAE’s defense industrial base through the creation of Emirates Defense Industries Company (EDIC) in 2014 have helped consolidate and drive forward industrial defense capabilities,” he said.

“This has happened as the countries focus on improving the quality of the defense technological work packages they undertake through offset, as well as increasing their ability to begin exporting defense equipment.”

Regional countries are also considering the use of “disruptive technologies” such as artificial intelligence in defense, Forrester said.

Meanwhile, it emerged on Friday that worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018.

The US was responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference and quoted by Reuters.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea, the report said, but added that “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland.”