Turkey could benefit if Fed holds interest rates

ANKARA

Turkey is likely to benefit if the U.S. Federal Reserve delays its decision Thursday to raise interest rates, economists told Anadolu Agency.

The Fed is set to decide on whether to increase interest rates for the first time since 2006. The central bank’s Federal Open Markets Committee could increase rates 0.25 percent from near-zero levels.

Any hike could cause turmoil in global markets and an outflow of funds from many countries, according to the World Bank, but could have beneficial effects for Turkey.

“Any decision to delay an interest rate rise would reduce pressure on the Turkish lira,” Attila Yesilada, an economist with Global Source Partners in Istanbul, said.

Bora Tamer Yilmaz, an economist at Ziraat Securities, added: “If rates stay at near-zero and there is a signal for a rate hike before the end of this year that would be the golden scenario for risk assets and the Turkish lira.”

In this case, Yilmaz forecast a rally in emerging markets and other risk assets.

Even a sign that any future rises would be gradual would ease uncertainty and help the lira, he added, as well as taking pressure off inflation as there would no longer be a fear of sharp increases in the price of imported goods.

Yesilada said any tightening of interest rates would add to the pressure on emerging market currencies.

“The dollar is highly valued against these currencies now and a hold of interest rates by the Fed might push the dollar at least slightly lower,” he told Anadolu Agency. “That would take pressure off Turkish corporates, who have extensive holdings of dollar debt.”

He added: “For the Turkish consumer, lower prices on imported goods goes right to quality of life.”