The Turkish lira is gradually enjoying a comeback against the US dollar and several other major currency rivals. The lira, which had fallen off a cliff and plummeted to an all-time low, is attempting to dismiss inflation fears under the new central bank leadership. But it might be positive economic data and projections that could lift the lira in the second half of 2021.
The Istanbul Chamber of Industry’s manufacturing purchasing managers’ index (PMI) climbed to 51.3 in June, up from 49.3 in May – anything above 50 indicates expansion. The PMI reading posted increases in output, new orders, and job creation. But inflation – both input costs and output prices – accelerated at the fastest pace since September 2018 last month.
While this was a positive report, some believe that it could have been better if it were not for the renewed lockdowns in response to a resurgence in COVID-19 infections.
“There were some suggestions that growth could have been even stronger were it not for the ongoing difficulties in sourcing raw materials, with firms struggling to build input inventories and having to dip into stocks of finished goods to help fulfil new orders,” said Andrew Harker, Economics Director at IHS Markit, in a statement.
In other data, the economic confidence index surged to 97.8 in June, up from 92.6 in the previous month. Sentiment improved across the board, including manufacturers, service providers, retailers, and consumers.
On the monetary policy front, foreign exchange reserves ballooned to $59.24 billion in the week ending June 25, up from $56.02 billion in the previous week. This represented the third consecutive week that forex reserves have topped $50 billion.
But inflation continues to be Ankara’s biggest threat. The Ministry of Finance and the Treasury announced a new Price Stability Committee, with the aim of permanently stabilizing prices in Turkey. Treasury and Finance Minister Lütfi Elvan says the group will put together a list of solutions to routinely tackle supply shocks that intensify inflation risks.
President Recep Tayyip Erdogan stated that the main goal for his government “is single-digit inflation.” Despite his hands-on approach to monetary policy, the government stated that the central bank will not intervene in the committee’s work.
The Price Stability Committee will include Ministers of Treasury and Finance, Trade, Labor and Social Security, Energy and Natural Resources, Industry and Technology, and Agriculture and Forestry, and the chief for strategy and budget under the Turkish Presidency.
Meanwhile, speaking to businesses in the southern city of Gazianten, Elvan projected that the Turkish economy will grow as much as 20% in the second quarter of 2021.
“We expect double-digit growth in the second quarter of the year due to a strong base effect. We expect a growth of around 20%,” he said. “It is probable that we see a growth rate for the full year higher than the medium-term economic program due to investments, industrial production and foreign demand.”
The USD/TRY currency pair tumbled 0.26% to 8.6857, from an opening of 8.7087, at 13:54 GMT on Thursday. The EUR/TRY dropped 0.15% to 10.3104, from an opening of 10.3265.