TODAY’S ZAMAN – Lira’s losing streak may extend to second week

Lira’s losing streak may extend to second weekFollowing a week of losses, stirred by President Recep Tayyip ErdoIanand#39s continuous criticism of monetary policy, the lira is poised to see historic new lows against the US dollar, pundits have warned.The lira hit a record low of 26470 to the US dollar on Friday as ErdoIan continued his tirade against the central bank to cut interest rates more deeply.

On Friday, the dollar was already on a rising trend against other currencies, backed by the strong US jobs data that raised the specter of US Federal Reserve hiking interest rates. ErdoIanand#39s salvoes against the central bank only exacerbated the record lira sell-off.

ErdoIanand#39s criticisms followed earlier remarks where he said anyone who defended high rates was guilty of andquottreason.andquot Investors will likely remain nervous about threats to central bank independence in the new week according to market experts.

The lira may fall to as low as 280 to the US dollar this week unless investorsand#39 fears of political meddling in monetary policy are allayed, pundits argue.Turkish markets will watch two key readings in the new week.

The industrial production figures for January will be released on Monday. Industrial production had increased by 26 percent in December compared to the same month of 2013 and 12 percent from the previous month.

The second prominent figure comes on Wednesday with the release of the current account deficit (CAD) for January. The CAD had exceeded forecasts in December, jumping to $6.

82 billion. Turkeyand#39s deficit, which must be paid for by capital inflows, makes the economy vulnerable to global liquidity conditions, especially surges in the US dollarThe government is desperately trying to allay concerns about ErdoIanand#39s battle with the central bank.

Prime Minister Ahmet DavutoIlu met central bank Governor Erdem BaII and senior economy officials late on Saturday following his arrival back from New York to discuss the liraand#39s weakness, sources at the premierand#39s office said on Sunday. DavutoIlu, Deputy Prime Minister Ali Babacan and Finance Minister Mehmet IimIek met fund managers and bankers in New York last week in an attempt to allay concerns about the central bankand#39s independence, fuelled by ErdoIanand#39s criticism of the bank and its policies.

andquotDevelopments in domestic and foreign markets over the past couple of weeks have been discussed in light of the prime ministerand#39s assessments based on his impressions of meetings with foreign investors during his New York visit,andquot one of the sources said on Sunday. DavutoIlu met on Saturday night with BaII, Vahdettin ErtaI, the head of the Capital Markets Board (SPK), and Cavit DaIdaI, the acting undersecretary at the Treasury at the prime ministerand#39s office, along with Babacan.

Meanwhile, ErdoIan continued with comments on lira through the weekend. The president on Saturday urged businessmen not to try to profit from the strong dollar a day after the lira hit a record low against the US currency.

andquotI am addressing civil society groups and businessmen: Do not dare to make a quick buck by buying dollars. You will hit a brick wall,andquot ErdoIan said in the southeastern province of Gaziantep, a stronghold for the ruling Justice and Development Party (AK Party).

Facing flagging growth and with the June elections looming, ErdoIan has criticized the bank for not cutting interest rates sharply enough. He also evoked memories of the 2001 economic crisis, when the lira depreciated sharply against the dollar and interest rates shot up following a political crisis between the prime minister and the president at the time.

andquotThis country became poor overnight because of a . crisis,andquot ErdoIan said, referring to the countryand#39s economic troubles in 2001.

andquotAnd some people pocketed $40 million.andrdquo.

SOURCE: Today’s Zaman