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Turkish Lira Slips toward Record Low in Post-rate-Cut Selloff

A woman walks past a board displaying exchange rates at a currency exchange office in Istanbul, Türkiye, 18 August 2022. (EPA)
A woman walks past a board displaying exchange rates at a currency exchange office in Istanbul, Türkiye, 18 August 2022. (EPA)
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Turkish Lira Slips toward Record Low in Post-rate-Cut Selloff

A woman walks past a board displaying exchange rates at a currency exchange office in Istanbul, Türkiye, 18 August 2022. (EPA)
A woman walks past a board displaying exchange rates at a currency exchange office in Istanbul, Türkiye, 18 August 2022. (EPA)

Türkiye's lira slid towards an all-time low on Friday as traders continued selling the currency after the previous day's surprise central bank interest rate cut in the face of near 80% inflation.

Analysts and bankers said Thursday's cut to 13% from 14% was the central bank leaping on booming and potentially record tourist revenue, and also suited President Tayyip Erdogan's long-term drive for lower borrowing costs.

Worries the cut will just feed more inflation resulted in a decline of 1% in the lira on Thursday to 18.15 against the dollar.

It stood at 18.0870 at 1553 GMT on Friday, leaving it just above a record low of 18.40 per dollar which it had hit in December during the last major meltdown. That had been a brief "intraday" low, though, and the currency set a record closing low of 18.089 on Thursday.

"In our view, more important than the rate cut was the signal provided by the central bank that it was uncomfortable with the recent softening in loan growth and wished to pivot back towards boosting short-term growth," Deutsche Bank's Fatih Akcelik said.

He added that if that should prove right, it was likely to widen the country's current account deficit and send the lira lower in the coming months.

"We still expect sharp lira depreciation to lead the CBT (central bank) to hike its policy rate in the last quarter of this year," Akcelik said.

The central bank's cut on Thursday had lowered its key rate by 100 basis points and was its first move of the year.

There had been no signal beforehand that it had been coming although the country's badly depleted foreign reserves have nearly tripled since early July to $15.7 billion as tourists locked down by COVID-19 over the last two years have flooded back.

"It is important to evaluate rate cut decisions together with the increase in forex reserves in the last couple of weeks. Tourism is very strong and forex income through exporters is high. Apart from that there is an inflow from Russia of around $5-$6 billion," a senior banker said.

"The central bank could be thinking the reserves will increase further. I want to think they took the rate cut risk with guaranteed foreign financing flow," added the banker, who spoke on condition of anonymity.

Erdogan's way

Rather than tackling the highest inflation in 24 years with rate rises, as is the approach of other central banks, Türkiye's bank is driving Erdogan's economic program of policy stimulus to promote exports, investment and economic growth.

Exports, boosted by targeted low lending rates, have in turn risen. Adding to foreign inflows, Türkiye's tourism season is on pace to nearly match pre-pandemic numbers. Traders also speculate that a funding deal has been reached with Russia, though authorities have not commented.

JPMorgan analysts called the rate hike "opportunistic (and) driven by the fact that net and gross FX reserves have increased ... likely due to a combination of tourism revenues that have reduced the CA deficit ... and USD deposits from Russian Rosatom for a nuclear power plant project."

In a sign of market stress, Türkiye's 5-year credit default swaps rose to 792 basis points from 656 a week ago. Yet in a reminder of how investors have fled Türkiye in recent years, volatility gauges rose only slightly.

The central bank had slashed rates by 500 basis points towards the end of last year, sparking a currency crisis in December that sent inflation soaring. The lira has lost more than 27% against the greenback so far this year and over 90% over the last decade.

The bank's policy-setting committee said it needed to act because leading indicators pointed to a loss of economic momentum in the third quarter and the new policy rate was "adequate under the current outlook".

Goldman Sachs analysts said in a note that Türkiye's macroeconomic policy mix had become more unsustainable with the latest decision and forecast annualized inflation to rise to more than 90%.

Credit rating agency Fitch, which has downgraded Türkiye multiple times in recent years, said the negative outlook it still has on the country's rating reflects the risks of focusing on growth despite the worsening environment.

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Business

Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
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Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).

Harvard University economics professor Pol Antràs said Saudi Arabia represents an exceptional model in the shifting global trade landscape, differing fundamentally from traditional emerging-market frameworks. He also stressed that globalization has not ended but has instead re-formed into what he describes as fragmented integration.

Speaking to Asharq Al-Awsat on the sidelines of the AlUla Conference for Emerging Market Economies, Antràs said Saudi Arabia’s Vision-driven structural reforms position the Kingdom to benefit from the ongoing phase of fragmented integration, adding that the country’s strategic focus on logistics transformation and artificial intelligence constitutes a key engine for sustainable growth that extends beyond the volatility of global crises.

Antràs, the Robert G. Ory Professor of Economics at Harvard University, is one of the leading contemporary theorists of international trade. His research, which reshaped understanding of global value chains, focuses on how firms organize cross-border production and how regulation and technological change influence global trade flows and corporate decision-making.

He said conventional classifications of economies often obscure important structural differences, noting that the term emerging markets groups together countries with widely divergent industrial bases. Economies that depend heavily on manufacturing exports rely critically on market access and trade integration and therefore face stronger competitive pressures from Chinese exports that are increasingly shifting toward alternative markets.

Saudi Arabia, by contrast, exports extensively while facing limited direct competition from China in its primary export commodity, a situation that creates a strategic opportunity. The current environment allows the Kingdom to obtain imports from China at lower cost and access a broader range of goods that previously flowed largely toward the United States market.

Addressing how emerging economies should respond to dumping pressures and rising competition, Antràs said countries should minimize protectionist tendencies and instead position themselves as committed participants in the multilateral trading system, allowing foreign producers to access domestic markets while encouraging domestic firms to expand internationally.

He noted that although Chinese dumping presents concerns for countries with manufacturing sectors that compete directly with Chinese production, the risk is lower for Saudi Arabia because it does not maintain a large manufacturing base that overlaps directly with Chinese exports. Lower-cost imports could benefit Saudi consumers, while targeted policy tools such as credit programs, subsidies, and support for firms seeking to redesign and upgrade business models represent more effective responses than broad protectionist measures.

Globalization has not ended

Antràs said globalization continues but through more complex structures, with trade agreements increasingly negotiated through diverse arrangements rather than relying primarily on multilateral negotiations. Trade deals will continue to be concluded, but they are likely to become more complex, with uncertainty remaining a defining feature of the global trading environment.

Interest rates and artificial intelligence

According to Antràs, high global interest rates, combined with the additional risk premiums faced by emerging markets, are constraining investment, particularly in sectors that require export financing, capital expenditure, and continuous quality upgrading.

However, he noted that elevated interest rates partly reflect expectations of stronger long-term growth driven by artificial intelligence and broader technological transformation.

He also said if those growth expectations materialize, productivity gains could enable small and medium-sized enterprises to forecast demand more accurately and identify previously untapped markets, partially offsetting the negative effects of higher borrowing costs.

Employment concerns and the role of government

The Harvard professor warned that labor markets face a dual challenge stemming from intensified Chinese export competition and accelerating job automation driven by artificial intelligence, developments that could lead to significant disruptions, particularly among younger workers. He said governments must adopt proactive strategies requiring substantial fiscal resources to mitigate near-term labor-market shocks.

According to Antràs, productivity growth remains the central condition for success: if new technologies deliver the anticipated productivity gains, governments will gain the fiscal space needed to compensate affected groups and retrain the workforce, achieving a balance between addressing short-term disruptions and investing in long-term strategic gains.

Business

Aljadaan: Emerging Markets Account for 70% of Global Growth

Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat
Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat
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Aljadaan: Emerging Markets Account for 70% of Global Growth

Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat
Al-Jadaan speaking to the attendees at the "AlUla Conference for Emerging Market Economies" (Asharq Al-Awsat

Saudi Minister of Finance Mohammed Aljadaan stressed Sunday that the world economy is going through a “profound transition,” saying emerging markets and developing economies now account for nearly 60 percent of the global Gross Domestic Product (GDP) in purchasing power terms and over 70 percent of global growth.

In his opening remarks at the AlUla Conference for Emerging Market Economies, organized by the Saudi Ministry of Finance and the IMF in AlUla, the minister said these economies have become an increasingly important driver of global growth with their share of global economy more than doubling since 2010.

“Today, the 10 emerging economies in the G20 alone account for more than half of the world growth. Yet, they face a more complex and fragmented environment, elevated debt levels, slower trade growth and increasing exposure to geopolitical shocks.”

“Unfortunately, more than half of low income countries are either in or at the risk of debt distress. At the same time global trade growth has slowed at around half of what it was pre the pandemic,” Aljadaan added.

The Finance Minister stressed that the Saudi experience over the past decade has reinforced three lessons that may be relevant to the discussions at the two-day conference, which brings together a select group of ministers and central bank governors, leaders of international organizations, leading investors and academics.

“First, macroeconomic stability is not the enemy of growth. It is actually the foundation,” he said.

“Structural reforms deliver results only when institutions deliver. So there is no point of reforming ... if the institutions are unable to deliver,” he stated.

Finally, he said that “international cooperation matters more, not less, in a fragmented world.”

Business

Georgieva from AlUla: Growth Still Lacks Pre-pandemic Levels

Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)
Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)
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Georgieva from AlUla: Growth Still Lacks Pre-pandemic Levels

Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)
Kristalina Georgieva speaking to attendees at the second edition of the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat)

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said Sunday that world growth still lacks pre-pandemic levels, expressing concern as she expected more shocks amid high spending and rising debt levels in many countries.

Georgieva spoke at the AlUla Conference for Emerging Market Economies, organized by the Saudi Ministry of Finance and the IMF in AlUla.

The two-day conference brings together a select group of ministers and central bank governors, leaders of international organizations, leading investors and academics to deliberate on policies to global stability, prosperity, and multilateral collaboration.

Georgieva said that the conference was launched last year in recognition of the growing role of emerging market economies in a world of sweeping transformations.

“I came out of this gathering .... With a sense of hope for the pragmatic attitude and determination to pursue good policies and build strong institutions,” she said.

Georgieva stressed that “good policies pay off,” and said that growth rates across emerging economies reached four percent this year, exceeding by a large margin those of advanced economies that are around 1.5 percent.