Turkish central bank struggles to lift lira off lows

Updated 12 March 2015

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.


Analysts urge Canada to focus on boosting the economy

Updated 06 July 2020

Analysts urge Canada to focus on boosting the economy

  • Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time

TORONTO: Canada should focus on boosting economic growth after getting pummeled by the COVID-19 crisis, analysts say, even as concerns about the sustainability of its debt are growing, with Fitch downgrading the nation’s rating just over a week ago.

Canadian Finance Minister Bill Morneau will deliver a “fiscal snapshot” on Wednesday that will outline the current balance sheet and may give an idea of the money the government is setting aside for the future.

As the economy recovers, some fiscal support measures, which are expected to boost the budget deficit sharply, could be wound down and replaced by incentives meant to get people back to work and measures to boost economic growth, economists said.

“The only solution to these large deficits is growth, so we need a transition to a pro-growth agenda,” said Craig Wright, chief economist at Royal Bank of Canada. The IMF expects Canada’s economy to contract by 8.4 percent this year. Ottawa is already rolling out more than C$150 billion in direct economic aid, including payments to workers impacted by COVID-19.

Further stimulus measures could include a green growth strategy, as well as spending on infrastructure, including smart infrastructure, economists said. Smart infrastructure makes use of digital technology.

“We have to make sure that government spending is calibrated to the economy of the future rather than the economy of the past,” Wright said.

Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time, citing the billions of dollars in emergency aid Ottawa has spent to help bridge the downturn caused by COVID-19 shutdowns.

Standard & Poor’s, Moody’s and DBRS still give Canadian debt the highest rating. At DBRS, Michael Heydt, the lead sovereign analyst on Canada, says his concern is about potential structural damage to the economy if the slowdown lingers too long.

Fiscal policymakers “need to be confident that there is a recovery underway before they start talking about (debt) consolidation,” Heydt said.

Fitch expects Canada’s total government debt will rise to 115.1 percent of GDP in 2020 from 88.3 percent in 2019.

Royce Mendes, a senior economist at CIBC Capital Markets, said the economy still needs more support.

“Turning too quickly toward austerity would be a clear mistake,” he said.