The Turkish lira extended its losing streak on Thursday, joining the decline in the broader financial markets. Despite its meteoric ascent in the last few months, the lira has failed to sustain the momentum after deciding to leave interest rates unchanged. Will the lira test 7.4 against its US peer next?
Gross foreign exchange reserves rose to $53.864 billion in the week ending February 19, up from $53.72 billion in the previous week. This represented the fifth consecutive week that forex reserves have topped $50 billion. This is the highest these reserves have been since June 2020, but they are still half of what they were in early last year.
The Turkish Statistical Institute (TSI) reported that the economic confidence index eased to 95.8 in February, down from 96.2 in January. Economic optimism trended lower amid deteriorating confidence among services providers, manufacturers, and constructors. But consumers and retailers maintained a more upbeat attitude regarding the world’s 20th-largest economy.
Turkey’s central bank released the minutes from the Monetary Policy Committee’s February meeting, where it left the benchmark one-week repo rate at 17%.
Policymakers revealed that monetary policy tightening would be its primary strategy until reliable indicators highlight a permanent decline in inflation and price stability. Officials added that domestic demand conditions, rising commodity prices, exchange rates, and inflation expectations would weigh heavily on additional monetary tightening moving forward.
Still, the central bank noted that economic activity is poised to remain strong, despite the wide variety of uncertainties regarding the short-term outlook.
Meanwhile, the Turkish government is scheduled to reveal its new economic reform policies in the second week of March. Finance Minister Lutfi Elvan announced on Twitter that “we have come to the end of our economic reform work, which includes macroeconomic stability policies and structural policies.”
Elvan noted that the reforms would concentrate on investment, production, export, and employment.
President Recep Tayyip Erdogan had promised a new economic era that would comprise economic and judicial reforms and a human rights action plan.
This comes soon after Moody’s updated its economic growth forecast for Turkey, projecting 4% gross domestic product (GDP) growth in 2021, up from 3.5% in the previous outlook. Last week, Fitch Ratings increased its outlook from “negative” to stable,” alluding to “a more consistent and orthodox policy mix under a new economic team.”
The USD/TRY currency pair advanced 2.7% to 7.3631, from an opening of 7.1687, at 18:00 GMT on Thursday. The EUR/TRY climbed 2.8% to 8.9683, from an opening of 8.7256.