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Tue, 12 Nov 2019 11:14 GMT

Worst Week Awaits Turkish Lira as Trump Threatens Sanctions


Ahmed Fathi

Tue, 15 Oct 2019 15:17 GMT

After the US announced it would impose sanctions on Ankara as a result of its aggression launched in northern Syria last week, the financial news agency Bloomberg predicted that the next seven days will be the worst for the Turkish lira since last March.

Bloomberg said that last week the downward trend, counting the risk reversal for a month, increased at the highest pace since March because of the chances of further US sanctions on Ankara following its launch of the offensive in Syria.

President Trump said on Twitter that the Treasury Department was ready to act if additional sanctions were needed.

"Dealing with @LindseyGrahamSC and many members of Congress, including Democrats, about imposing powerful Sanctions on Turkey. Treasury is ready to go, additional legislation may be sought. There is great consensus on this. Turkey has asked that it not be done. Stay tuned!" Trump tweeted on Sunday October, 13th.

"Big sanctions on Turkey coming!" he tweeted on Monday.

Trump's comments came after US Treasury Secretary Stephen Mnuchin said the US has full authority to impose sanctions quickly on Turkey. These could include shutting down all US dollar transactions with the country’s entire government -- which is a step the administration may take. Bloomberg said the threat reinforced investors' worst fears for the Turkish lira.

His comment echoed that of Trump, who on October 7th, tweeted that “if Turkey does anything that I, in my great and unmatched wisdom, consider to be off limits, I will totally destroy and obliterate the Economy of Turkey.”

In this regard, one London-based trader said there had been a “steady selling of US dollars by Turkish state banks” over recent days, in what appeared to be an effort to prevent the lira from falling faster, the Financial Times reported.

Sanctions threats also come amid reports of atrocities already taking place in Syria, which have boosted criticism of Trump's decision to withdraw US troops in northern Syria. Critics say Trump has given the Turkish regime the green light to attack US-allied Kurdish forces, putting them at risk of the return of Isis and the slaughter of fellow-Kurds, Bloomberg said.

Last year, the United States imposed sanctions on senior Turkish officials for the detention of a US pastor, Andrew Brunson, sparking a currency crisis that pushed the Turkish economy into its first recession in a decade and caused the lira to fall at its fastest rate since 2001.

Moody's credit ratings agency said on Friday that Turkey's new growth targets were threatening to increase macroeconomic imbalances and appeared inconsistent with the rest of Istanbul's three-year economic targets.

Turkey is seeking to recover from a recession caused by last year's currency crisis, which saw the lira lose about 30% of its value and caused inflation to hit 15-year highs.

In the wake of the crisis, Ankara last year announced lower growth and higher inflation expectations, but last week raised its estimate for 2020 growth to 5% from 3.5% and cut its inflation forecast for the current and next year.

In last week's reviews, Turkey also raised its forecast for the budget deficit-to-GDP ratio to 2.9% in the next two years. It set its current-account deficit-GDP ratio at 1.2% for next year and 0.8% for 2021.

"The new policy document sets very ambitious growth targets of 5% per year from 2020 to 2021, which we believe can only be achieved at the expense of worsening structural imbalances in the Turkish economy," Moody's said in an e-mailed note.

It said these imbalances included a widening current account deficit and renewed upward pressure on inflation.

The current account deficit, which has long been a concern for investors, has shrunk dramatically since the currency crisis, mainly due to lower imports due to higher prices, Moody's said

The agency expects Turkey's economy to stabilise at 0.25% and rise to at least 3 % in 2020 and 2021.

"Until Ankara implements a package of credible and comprehensive reforms, Turkey will remain vulnerable to a balance-of-payments crisis, and the improvement in some key economic indicators will likely prove transient," Moody's said.

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