Fluctuations in markets temporary: Turkish Deputy PM
Deputy Prime Minister Ali Babacan is seen in Davos with his wife Zeynep Babacan. Babacan downplayed the role of the political crisis, fueled by a graft probe launched on Dec 17, in the recent market fluctuations in Turkey. AA PhotoThe fluctuations in Turkish markets are temporary and will not derail the country’s economy, top Turkish official responsible for economy said Jan. 24.
“Those who put trust in Turkey’s long term accomplishments and stability will not regret it,” Deputy Prime Minister Ali Babacan said in a televised interview in Davos, Switzerland.
Babacan’s remarks came on a day the Turkish Lira dropped to new lows against the U.S. dollar and euro. The lira was 2.3270 against the dollar and 3.18 against the euro in the late afternoon trade. Borsa Istanbul also had losses as its main index dropped almost 2 percent to 64.137.
The currency has plunged about 10 percent since mid-December - hitting new lows almost daily this year - battered by the political turmoil and concerns about its gaping currency account deficit.
Babacan downplayed the role of the political crisis, fueled by a corruption probe launched on Dec. 17 that targeted some ministers and the government’s move to increase its control over the judiciary, in market fluctuations, arguing the recent changes in exchange rates were caused by developments in global markets.
“Similar fluctuations were seen on Jan. 23 in many countries, including Russia,” Babacan said.
The deputy prime minister said the global picture should be taken into account when developments in Turkey are analyzed.
“We expected changes in liquidity policies of the developed countries when we were preparing our 2014 program, we stated these changes could have repercussions in the economies of the developing countries,” he said.
Babacan said it was natural for economies like Turkey’s to be affected in such circumstances.
Turkey, like other emerging markets, is vulnerable to the U.S. Federal Reserve’s plans to taper its monetary stimulus as it reduces access to cheaper funds to cover its account deficit, currently at over 7.0 percent of gross domestic product.
Analysts are forecasting a further slide in the lira because of the political tensions and tepid economic growth, with some suggesting a level of 2.35 to the dollar over 12 months.
The government has insisted its growth target of four percent for this year remains intact, but the European Bank for Reconstruction and Development on Jan. 21 cut its forecast to 3.3 percent. Turkey is currently rated at an investment grade of Baa3 by Moody’s Investors Service, BB+ by Standard & Poor’s and BBB- by Fitch Ratings.
The Central Bank has so far refrained from hiking interest rates to defend the lira, with the government reluctant to jeopardize its growth and inflation targets.
At its highly-anticipated monthly policy meeting on Jan. 21, it said it was holding its key overnight rate at 7.75 percent.
However, it gave itself room for maneuvers, saying it would raise interbank rates to nine percent on “additional monetary tightening days” -- nevertheless confusing the markets about its intentions.