Turkish lira slides fit 7 as Albayrak’s heritage surfaces by Reuters

ISTANBUL (Reuters) – fell 1% on Monday, pairing some gains after a four-month rally as rising US bond yields boosted the dollar and as the finance minister defended his predecessor’s policy, which overlooked a sharp drop in foreign exchange reserves.

Data drew a mixed picture of the economy’s recovery from the coronavirus pandemic with tourist arrivals still in a deep decline, and producer confidence rose. Goldman Sachs (NYSE 🙂 and Bank of America (NYSE 🙂 both upgraded GDP forecasts for 2021.

The lira – which far exceeds the emerging markets in the emerging market – weakened all the way up to 7.0275 against the dollar and stood at 7.0020 at 1026 GMT, down 0.7% on the day. Last week it rose to 6.9, the best since August.

The dollar bounced back from perennial downturns on rising expectations of faster economic growth and inflation in the world’s largest economy, putting pressure on the lira.

Turkey’s currency has risen more than 20% since early November, when a new central bank governor and finance minister were appointed, raising expectations of a tight monetary policy and a more orthodox approach after years of perceived mismanagement.

Under former finance minister Berat Albayrak, the son-in-law of President Tayyip Erdogan, the central bank’s foreign exchange reserves were poorly depleted due to an expensive policy in which state banks sold $ 128 billion in dollars in support of the lira.

Late on Sunday, new Finance Minister Lutfi Elvan recently condemned political criticism of Albayrak’s policies, saying transactions that had reduced reserves were aimed at ensuring financial stability amid the volatile pandemic.

The central bank under the new governor Naci Agbal says it will start rebuilding reserves, which buffer against the financial crisis and which on a net basis fell by about three quarters during 2020.

The rating agency Fitch revised Turkey’s outlook to be “stable” from “negative” on Friday, citing a more consistent and orthodox policy mix under a new leadership that has helped ease nearby external funding risks.

Turkey’s economy, which was hit hard in the second quarter of last year, has recovered well and should record growth for 2020 as a whole. BofA raised its 2021 growth forecast to 4.6% from 4.1% despite what it called signs of a slowdown in the first quarter.

Wall Street bank Goldman raised this year’s expectation to 6% growth from 4% and also penned a rate cut to 16.5% from 17% now due to the recent strength of the lira.

Turkey’s capacity utilization rate fell slightly to 74.9% in February, still well above the lowest decade touched in April. Production confidence over the same period rose to 109.3 points, central bank data said.

In January, Turkey saw less than a third of tourists from a year earlier. Tourism revenue, which is the key to financing the country’s chronic balance of payments deficit, plummeted last year.