Jun 05 2018

Big, dark cloud still hangs over lira – FT

A big, dark cloud is still hanging over the lira as a sell off in emerging markets means investors might not be willing to fund the country’s growing current account deficit and foreign debt load, the Financial Times said citing analysts.

Turkey’s reliance on foreign money is the biggest concern -- it must find about $200 billion to fund a shortfall and its foreign currency reserves are only $85 billion, according to Nora Neuteboom, an economist at ABN Amro. At the same time, economic growth has now probably peaked and the country is entering a slowdown in which a natural correction in the current account might occur, she said.

The lira weakened 0.2 percent to 4.6 per dollar on Tuesday, off a record low of 4.92 reached two weeks ago.

Turkish banks are being forced to restructure billions of dollars in foreign debt and non-performing loan ratios, higher than official figures, are set to rise further, the FT said.

“W expect a higher rate of bad debt provisions at Turkish banks and a lower appetite for lending, especially in foreign currencies,” said Gabor Kemeny, a partner at Aurtonomous Research.

Turkey remains vulnerable to shifting global sentiment as investors react to U.S. rate increases. This will require more careful economic management, said Uras Ulku, an analyst at the Institute of International Finance, according to the Financial Times.