Fitch Predicts Perpetuated Economic Contraction for Turkey

A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018. REUTERS/Murad Sezer
A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018. REUTERS/Murad Sezer
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Fitch Predicts Perpetuated Economic Contraction for Turkey

A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018. REUTERS/Murad Sezer
A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul, Turkey August 2, 2018. REUTERS/Murad Sezer

The international credit rating agency Fitch Ratings predicted a continued economic contraction in Turkey for 2019 citing the government’s inability to carry out needed adjustments in the aftermath of the Turkish Lira losing over 30 percent of its value against the dollar.

In a statement, Fitch Ratings underlined that "any early monetary easing" risks revamped pressure on the lira at a time any noteworthy slowdown threatens to break down Turkey's commitment to regulate public finance.

The striking depreciation of national currency, with the lira falling to its lowest levels against the dollar in 2018, and inflation surging to a 15-year high last November has not only served a severe blow to Turkey’s economy, but also prompted the central bank to raise interest rates by 11.25 percentage points, leaving many companies unable to pay back foreign currency loans.

In 2018, the Turkish economy contracted by 3 percent.

The lira plunging more than 4 percent against the US dollar on Friday, and continuing a downward performance on Saturday that saw it shed an added 7 percent has forced the country’s Central Bank to suspend one-week repo auctions in an attempt to squeeze liquidity in the market.

Concerned with the central bank’s ability to curb inflation in the face of calls from President Recep Tayyip Erdogan for lower borrowing costs, investors were demotivated.

That sell-off, which tipped the economy into recession in the fourth quarter, was exacerbated by strained ties between Ankara and Washington over the trial of a US evangelical pastor in Turkey.

In light of the slowdown of economic growth and depreciating currency, the Turkish Treasury resorted to borrowing $1 billion through its dollar-denominated April 2029 bond.
The bond has a coupon rate of 7.625 percent and a yield to investors of 7.15 percent.

“The offering attracted an orderbook of approximately 3 times the actual issue size from more than 100 accounts,” the Treasury and Finance Ministry said in a statement on its website on Saturday.

The ministry had mandated Goldman Sachs, JP Morgan ve Standard Chartered for the reopening of its US dollar-denominated bond issue.

Some 39 percent of the bonds were sold to investors in the US, 34 percent in the UK, 17 percent in Turkey, 7 percent in other Europe, and 3 percent in other countries.

“The total amount of the US dollar bond issuance was converted into an equivalent EUR liability. As a result of this swap transaction, EUR denominated coupon rate was realized as 4.859 percent and the EUR equivalent yield to the investor was realized as 4.381 percent,” the statement added.

The proceeds of the issue will be transferred to the Treasury’s accounts on March 26.

With this transaction, the amount of funds that have been raised from the international capital markets as part of the $8 billion worth of 2018 Eurobond issuance program has reached $6.4 billion.



Dollar Drifts as World Braces for Trump's Reciprocal Tariffs

A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
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Dollar Drifts as World Braces for Trump's Reciprocal Tariffs

A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo
A teller sorts US dollar banknotes inside the cashier's booth at a forex exchange bureau in downtown Nairobi, Kenya February 16, 2024. REUTERS/Thomas Mukoya/File photo

The dollar wobbled on Tuesday after a bruising quarter as weary investors braced for reciprocal tariffs from US President Donald Trump this week, a move that is likely to exacerbate the global trade war that has evoked US recession worries.

Investors' focus has been firmly on the new round of reciprocal levies that the White House is due to announce on Wednesday, with details scarce. Trump said late on Sunday that essentially all countries will be slapped with duties this week.

That has left currency markets subdued as traders stayed on the sidelines awaiting clarity on Trump's trade policies. Trump has already imposed tariffs on aluminium, steel and autos, along with increased tariffs on all goods from China.

"The second quarter may bring with it as much uncertainty and volatility for investors as the first quarter of the year," said Anthony Saglimbene, chief market strategist at Ameriprise Financial, Rueters reported.

"To date, there has been very little clarity on what and who these tariffs will target out of the gate. Market volatility could escalate depending on what and who is targeted."

The euro was 0.11% lower at $1.0805 after gaining 4.5% in the first quarter of the year, its strongest quarterly performance since October-December in 2022, thanks mainly to Germany's fiscal overhaul, although some investors are sceptical of the bull run lasting longer.

The Japanese yen was a shade stronger at 149.815 per dollar on Tuesday. The yen rose nearly 5% against the dollar in the January-March period on growing bets that the Bank of Japan would hike interest rates again.

Data on Tuesday showed business sentiment among big Japanese manufacturers worsened in the three months to March, a sign escalating trade tensions were already taking a toll on the export-reliant economy and complicating the BOJ's next move.

Beyond tariffs, a string of economic reports, including jobs and payrolls data, could shed much-needed light on how the US economy is holding up under a second Trump presidency.

Federal Reserve Chair Jerome Powell and other central bank officials' speeches this week also could offer clues on the path for US interest rates.

The Reserve Bank of Australia on Tuesday held interest rates steady at 4.1% and said it was still cautious about the outlook, though it dropped an explicit reference to being cautious about cutting rates again.

The Aussie was mostly steady, up 0.1% at $0.6256 in a muted response to the policy decision. The currency had touched a four-week low of $0.6219 on Monday, though it eked out a 1% gain in the first quarter.

"The RBA's statement suggests they're inching towards their next cut, but in no rush to signal one ahead of the election or the quarterly inflation figures," said Matt Simpson, senior market analyst at City Index. Australia will hold a general election on May 3.

The RBA delivered its first rate cut in over four years in February but has since adopted a cautious tone on further easing, with Governor Michele Bullock and other top policymakers downplaying the likelihood of multiple cuts.

The dollar index, which measures the US currency against six rivals, was flat at 104.23. Sterling last fetched $1.2916, while the New Zealand dollar was at $0.56755.