Lira Traders Brace as Central Banker Fired, Minister Quits
Lira Traders Watch for Rate-Hike Cues After Central Banker Fired
(Bloomberg) -- Traders in Turkey’s lira, the worst-performing emerging-market currency this year, are preparing to cast their verdict on two potentially huge upheavals to the country’s finances -- the second change of central-bank chief in 16 months and the sudden resignation of the treasury minister.
President Recep Tayyip Erdogan fired Governor Murat Uysal over the weekend as a series of interest rate increases failed to halt the depreciation of the lira. The Turkish currency has lost about 30% against the dollar in 2020, a decline that has accelerated since the central bank held back from raising the cost of borrowing at its October meeting.
Less than two days later on Sunday evening, Berat Albayrak said he was stepping down as treasury and finance minister because of undisclosed health reasons. He made the announcement on his Instagram account, saying he wanted to spend more time with his family. Albayrak, who’s also the president’s son-in-law, has been in the cabinet since 2015.
For many traders, Uysal’s sudden replacement by former Finance Minister Naci Agbal is unlikely to stem the lira’s losses unless monetary policy takes a more hawkish turn. Inflation is in double digits, the country is running a current-account deficit and foreign reserves are being eroded.
“The lira likely has more to fall,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer, an emerging-market research firm. “Although policy credibility is very low, which means the currency keeps falling, the one comfort for investors is that we may be nearing the end of unjustifiably loose policy.”
The appointment is unlikely to alter trends in the currency, inflation and reserves “if they are not followed by significant changes in policy,” Goldman Sachs Group Inc. economists Murat Unur and Clemens Grafe wrote in a note.
“The stealth tightening already under way is an admission that inflation has to be addressed,” Malik of Tellimer said. “That means sizable rate hikes sooner or later, regardless of which personality heads the central bank.”
Joe Biden’s victory in the U.S. presidential election is unlikely to do the lira any favors either. Traders have been concerned that U.S.-Turkish relations will cool under the new administration. The Turkish government faces possible U.S. sanctions over the purchase of a Russian missile system.
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