Turkish lira slides 1.5% as ex-finance minister’s legacy surfaces

FILE PHOTO: A merchant counts Turkish lira banknotes at the Grand Bazaar in Istanbul, Turkey
FILE PHOTO: A merchant counts Turkish lira banknotes at the Grand Bazaar in Istanbul, Turkey, March 29, 2019. REUTERS/Murad Sezer

February 23, 2021

ISTANBUL (Reuters) – Turkey’s lira dipped as much as 2% on Monday after a four-month rally as the government defended a former finance minister’s policies that oversaw a sharp decline in FX reserves and a Wall Street bank suggested locking in profits.

The lira – which has far outperformed emerging market peers this year – weakened to almost 7.1 against the dollar and was at 7.059 at 1542 GMT, down 1.5% on the day. Last week it had rallied to 6.9, the best since August.

The currency has gained some 20% since a snap leadership overhaul in early November boosted expectations of tight monetary policy and a more orthodox approach after years of perceived mismanagement.

Under former finance minister Berat Albayrak, who is President Tayyip Erdogan’s son-in-law and served for two years, the currency shed half its value. The central bank’s FX reserves were also badly depleted due to a policy of state banks selling some $130 billion in dollars to support the lira.

In response to pressure from an opposition party to account for what it called lost funds, Erdogan, new Finance Minister Lutfi Elvan and other government leaders condemned the criticism of Albayrak and defended his record.

Erdogan said Albayrak – who abruptly resigned in November as the lira hit a record low – helped Turkey ride out the coronavirus pandemic, adding the FX transactions ensured financial stability.

The central bank under new Governor Naci Agbal says it will start to rebuild the reserves, which buffer against financial crisis, and which on a net basis fell by about three-quarters throughout 2020.

Ratings agency Fitch revised Turkey’s outlook to ‘stable’ from ‘negative’ on Friday, citing a more consistent and orthodox policy mix since November that eased external financing risks.

Adding to pressure on the lira – which was on track for perhaps its worst day of the year so far – the dollar rebounded from multi-year lows on Monday on rising expectations of faster U.S. economic growth and inflation.

Turkey’s economy, hit hard in the second quarter of last year, has rebounded and should record growth for 2020 as a whole. Data on Monday showed that while tourism remained in a deep slump, manufacturing confidence was rising.

Goldman Sachs and Bank of America upgraded GDP forecasts for 2021 to 6% and 4.6%, respectively.

But JPMorgan, another Wall Street bank, told clients it was prudent to take profits on bullish bets on the lira given its recent rapid rise.

(Reporting by Ezgi Erkoyun; Editing by Jonathan Spicer and Steve Orlofsky)