Moody’s warns on Erdogan’s interference in Turkish monetary policy

Turkey president, Recep Tayyip Erdogan recently announced that he would be taking greater of the country's economy
Updated 15 May 2018

Moody’s warns on Erdogan’s interference in Turkish monetary policy

  • The centralization of power and interference in monetary policy concerns the rating agency.
  • Moody’s downgraded Turkey by one notch to Ba2 in March. However the move had little impact on markets at the time.

LONDON: Turkey is increasingly vulnerable to economic shocks, with President Recep Erdogan’s determination to interfere with interest rates impacting the country’s creditworthiness, according to rating agency Moody’s.

The Turkish lira touched a record low against the dollar on Tuesday, hours after President Erdogan said he could exert more influence on monetary policy if re-elected in June.

“What is a worry to us is that some of the anchors of Turkey’s creditworthiness have been eroded over time. The centralization of power and interference in monetary policy is a concern to us,” Matt Robinson, associate managing director with responsibility for the Middle East at Moody’s, told Arab News.

“This could provide for a more toxic mix than in the past.”

President Erdogan’s monetary meddling threatens to compound the impact of macro-economic headwinds impacting Turkey’s economy, including rising interest rates, the increasing strength of the dollar, and rising commodities prices.

“That’s all credit negative for Turkey,” said Robinson.

Next month’s snap presidential and parliamentary elections — called by President Erdogan in April — will clear the way for a more presidential style of government rather than a parliamentary one, which has drawn criticism at home and abroad.

Robinson, who was speaking at a Moody’s forum on emerging markets said: “We are monitoring the situation there. We will see what policies are adopted, particularly post-election.”

He added: “It is quite easy to compare Turkey with Russia, where there are also geopolitical ambitions. But the foundations for Russia (one of the world’s top oil producers) are much firmer than in Turkey. With Turkey, our concerns are much more pronounced from a credit perspective.”

The Turkish lira has lost around 15 percent of its value since the start of the year amid fears about rising Turkish debt levels.

In an interview on Tuesday with Bloomberg Television in London, President Erdogan indicated he would be more pro-active in setting interest rates if reelected next month.

“When the people fall into difficulties because of monetary policies, who are they going to hold accountable? They’ll hold the president accountable. Since they’ll ask the president about it, we have to give off the image of a president who is influential on monetary policies,” he said.

The president recently described interest rates as the “mother of all evil” and called for their lowering, despite widespread calls for an emergency rise at a time when Turkey’s central bank is fighting to stem a flight away from the country’s currency.

“The president is not entirely on board with the only policy anyone imagines will help: much higher rates,” said Paul McNamara, an emerging-markets fund manager at GAM, in an interview with the Financial Times.

Erdogan told Bloomberg that his frequent interventions on interest rates influenced the central bank, and stated his intention to continue.

“Of course, our central bank is independent,” he said. “But the central bank can’t take this independence and set aside the signals given by the president, who’s the head of the executive.”

Moody’s downgraded Turkey by one notch to Ba2 in March, plunging its credit rating deeper into junk territory. It said at the time: “The government appears still to be focused on short-term measures, to the detriment of effective monetary policy and fundamental economic reform.”

The agency said that set against a negative institutional backdrop, Turkey’s external position, debt and rollover needs had continued to deteriorate.

The downgrade was shrugged off by financial markets at the time, and dismissed by Turkey’s government, which flagged up strong economic recovery after a brief dip after the failed coup in 2016.

GDP surged 7.4 percent in 2017, helped by a government stimulus package.

OPEC sees small 2020 oil deficit even before latest supply cut

Updated 12 December 2019

OPEC sees small 2020 oil deficit even before latest supply cut

  • OPEC keeps its 2020 economic and oil demand growth forecasts steady and is more upbeat about the outlook

LONDON: OPEC on Wednesday pointed to a small deficit in the oil market next year due to restraint by Saudi Arabia even before the latest supply pact with other producers takes effect, suggesting a tighter market than previously thought.

In a monthly report, OPEC said demand for its crude will average 29.58 million barrels per day (bpd) next year. OPEC pumped less oil in November than the average 2020 requirement, having in previous months supplied more.

The report retreats further from OPEC’s initial projection of a 2020 supply glut as output from rival producers such as US shale has grown more slowly than expected. This will give a tailwind to efforts by OPEC and partners led by Russia to support the market next year.

OPEC kept its 2020 economic and oil demand growth forecasts steady and was more upbeat about the outlook.

“On the positive side, the global trade slowdown has likely bottomed out, and now the negative trend in industrial production seen in 2019 is expected to reverse in 2020,” the report said.

Oil prices were steady after the report’s release, trading near $64 a barrel, below the level some OPEC officials have said
they favor.

The Organization of the Petroleum Exporting Countries, Russia and other producers, a group known as OPEC+, have since Jan. 1 implemented a deal to cut output by 1.2 million bpd to support the market. At meetings last week, OPEC+ agreed to a further cut of 500,000 bpd from Jan. 1 2020.

The report showed OPEC production falling even before the new deal takes effect.

In November, OPEC output fell by 193,000 bpd to 29.55 million bpd, according to figures the group collects from secondary sources, as Saudi Arabia cut supply.

Saudi Arabia told OPEC it made an even bigger cut in supply of over 400,000 bpd last month. The Kingdom had boosted production in October after attacks on its oil facilities in September briefly more than halved output.

The November production rate suggests there would be a 2020 deficit of 30,000 bpd if OPEC kept pumping the same amount and other factors remained equal, less than the 70,000 bpd surplus implied in November’s report and an excess of over 500,000 bpd seen in July. OPEC and its partners have been limiting supply since 2017, helping to revive prices by clearing a glut that built up in 2014 to 2016. But higher prices have also boosted US shale and other rival supplies.

In the report, OPEC said non-OPEC supply will grow by 2.17 million bpd in 2020, unchanged from the previous forecast but 270,000 less than initially thought in July as shale has not grown as quickly as first thought.

“In 2020, non-OPEC supply is expected to see a continued slowdown in growth on the back of decreased investment and lower drilling activities in US tight oil,” OPEC said, using another term for shale.