By Muhammed Ali Gurtas
The around 10 percent depreciation of the Turkish lira against the U.S. dollar since the beginning of 2017 does not reflect the genuine fundamentals of Turkey’s economy, economists told Anadolu Agency on Wednesday.
A group of economy experts said the fluctuations in the U.S. dollar/Turkish lira exchange rate had been affected by some manipulative actions following the U.S. presidential elections.
The U.S. dollar/Turkish lira exchange rate hit a historical record of over 3.90 on Wednesday.
Prof. Erdal Tanas Karagol, an expert from SETA Foundation for political, economic and social research, said: "Although the recent developments in the domestic markets are not considered as a financial coup, they clearly reveal the games being played against Turkey.
"It is obvious that there are speculative rumors behind losing so much value of the Turkish lira such as the statements by the international credit rating agencies like Moody's. We also do not expect an objective evaluation from another agency, Fitch, on Jan. 27.”
On Monday, Moody’s made a forecast that Turkish banking sector profits will be hit significantly in 2017 by rising non-performing loans.
"We expect asset quality trends to worsen in this year, driven by a combination of high inflation, lira depreciation and the general worsening of the investment climate because of security issues and geopolitical tensions," Moody’s said in its report.
Karagol noted such discredited rumors were being made to freeze capital inflows to the country and to show Turkey was not a safe haven while the country goes through its political process of changing its constitution.
Prof. Kerem Alkin from Istanbul Medipol University said: "If the economy was in trouble, then not only the foreign exchange rates but also the CDS [Credit Default Swap] rates, the risk premiums of the Turkey’s treasury stocks, should rise very rapidly."
Alkin noted the country's stock exchange market, Borsa Istanbul, had not declined sharply or the second-hand market interest rates of the Turkish bonds did not increase with maturities in two to 10 years.
"Therefore, it is very clear the fluctuations in the foreign exchange markets are through manipulative actions while there is a reasonable movement in other indicators," he said.
About the uncertainty surrounding how U.S. President-elect Donald Trump's policies would affect world economies and the U.S. Federal Reserve's tightening monetary actions, he said: "The Turkish Central Bank's monetary policy instruments is not the only solution. Meanwhile, the fiscal policy instruments must be used to prevent the increase in exchange rates."
He also suggested bonds with "super interest rates" as a solution like it was done during the 1994 economic crisis to persuade citizens to sell their foreign currency savings to limit the effects of volatility as well as the option to reset income tax being applied on Turkish lira denominated bank accounts for a period of time.
On Tuesday, the Turkish Central Bank cut its foreign exchange reserve requirement ratios for banks by 50 basis points to boost liquidity in financial sectors to up to $1.5 billion.
The bank also said market developments were being closely monitored, and further steps would be taken if necessary to safeguard price and financial stability in the country.
Prof. Necat Coskun from Gazi University said: "Although there is an improvement, the country's current account deficit is still an important factor. The open position of the private sector is putting serious pressure on the foreign exchange rates because the short-term debt -- up to a year -- is worth $87 billion."
Coskun noted Turkey got separated from other emerging economies during this period. "The instruments of the Central Bank are limited. The smartest solution is to increase the interest rates plus funding the economy by increasing public investments."
Turkey's economy ran a current account deficit of $2.27 billion last November with a 12-month rolling deficit of $33.65 billion, according to Turkish Central Bank.
Prof. Burak Saltoglu from Bogazici University also underlined the importance of transparency and reliable information about the position of the private sector during times of political uncertainty, Fitch's possible note discount and an increasing inflation.
"It is extremely important for the economy administration to make statements through a single channel to prevent confusions. In the short run, there is no solution apart from changing the cost of Turkish lira by increasing the interest rates to make the local currency more attractive," Saltoglu added.