ANKARA
The current low value of the Turkish lira is a buying signal, analysts told The Anadolu Agency on Thursday.
The Turkish lira dropped to an all-time low against the dollar to over 2.64 in early March amid political pressure on the country’s central bank to cut interest rates and expectations of an interest rate hike by the U.S. Federal Reserve. Currently lira is trading 2.5870 against the dollar.
Economists pointed out that the improvement in Turkey’s current accounts deficit, which narrowed over 30 percent last year due to low oil prices, should offer benefits to the lira as well.
Demetrios Efstathiou, a strategist at Standard Bank, told The Anadolu Agency that extreme investor bearishness and the substantial weakness of the lira are normally a buying signal.
“The lira is further supported by a rapid improvement in its current account deficit (the January deficit was much lower than expected at $2.0 billion). Very high carry, decreasing inflation and the European Central Bank’s stimulus program of quantitative easing are other positives,” he said. Carry trades are exchanges of currencies at low interest rates for those with high ones.
He said: “If there would be a signal of some kind of truce with the central bank, the lira has substantial room to appreciate.” The government has repeatedly criticized the central bank for its tight monetary policy, which the government maintains limits growth.
Christian Maggio, head of emerging markets research at TD Securities in London, noted that a strong dollar has affected the whole market, not Turkey alone. “Over the past 5 days, the lira has been the 12th best performer among 22 major Emerging Market currencies, which translates into a 2.4 percent depreciation to the dollar. So this is exactly in the middle of the range.”
Maggio said that The EU’s monetary policy will have the effect of keeping the EURTRY exchange rate more anchored or see it moving slightly in favor of lira, but will do little to protect lira against dollar.
William Jackson, senior emerging markets economist at Capital Economics, said if the central bank holds the policy rate at its next monetary policy meeting, the lira would appreciate.
The Turkish central bank will meet on March 17 to decide on interest rates, currently at about 7 percent, in the country,
“That’s quite certain. If they do hold rates, then there is scope for lira to appreciate. We have to be quite careful about the other moving part; The euro to dollar exchange rate, we have seen very sharp depreciation against dollar, and that is quite a concern because of Turkey’s dollar debt. The lira has not weakened much against the euro, as the euro has also been weak. We have to watch what happens to the Turkish lira,” Jackson said.
Turkey's current account deficit narrowed by $2.9 billion in January compared with the same month in 2014.
The country's current account deficit stood at $42.9 billion on annual basis, the Turkish Central Bank said in a statement on Wednesday.
