MESOPOTAMIA NEWS : Turkish lira in third day of losses as Fitch signals possible rating downgrade

Ahval NEWS – Mar 24 2021 01:20 Gmt+3

Turkey’s lira fell on Wednesday, heading for a third-straight day of losses, after credit ratings agency Fitch joined investors in slamming a decision by President Recep Tayyip Erdoğan to sack the governor of the central bank.

The lira dropped 0.5 percent to 7.98 per dollar, nearing a key psychological level of 8 against the U.S. currency. That extended losses since Friday’s close to almost 10 percent.

Erdoğan dismissed central bank governor Naci Ağbal in a shock decision overnight on Friday, stoking fears of a return to the unorthodox economic policies that had pushed the lira to a record low last year. Erdoğan brought in Şahap Kavcıoğlu, a former banker and parliamentarian for his governing party, who has supported his calls to lower interest rates despite the country’s double-digit inflation.

Fitch signaled late on Tuesday that it could downgrade Turkey’s junk sovereign debt rating of ‘BB-‘, citing Ağbal’s departure.

Ağbal had hiked the benchmark interest rate to 19 percent from 10.25 percent since his arrival in early November to rein in inflation and stabilise the lira. Erdoğan publicly opposed the higher interest rates saying they were inflationary.

“We will consider the policy direction under the new central bank governor and the evolution of the external position,” Fitch said in a report.

“We considered rebuilding economic policy credibility a challenging task even for the experienced Mr Ağbal, a former finance minister. Mr Kavcıoğlu, the fourth central bank governor in the past two years, does not have a comparable record,” it said.

Erdoğan said on Wednesday that his government would focus on promoting economic growth, increasing exports and boosting manufacturing and employment under a new economic reform programme.

Turks should deposit any gold or foreign currency that they keep at home in the country’s banks to help companies and the economy, Erdoğan said in a speech at a congress of his governing Justice and Development Party (AKP) in Ankara. He called on banks to offer attractive terms for the investments.

Events in Turkey’s financial markets this week do not reflect the country’s fundamentals, he said.