The Turkish lira continued its rebound on Tuesday following a sell-off last week that led to the currency approaching record lows against the US dollar.
The lira was trading at 8.2237 to the dollar at 1.52pm UAE time on Tuesday, up 0.7 per cent on the day. However, this was after a slide of 3.9 per cent last week and the currency remains about 9.6 per cent lower year to date.
Last week's slide was the result of the "new central bank governor [Sahap] Kavcioglu’s endorsement of President Erdogan’s justification for the use of foreign reserves to defend the currency over the last year", Hasnain Malik, a Dubai-based emerging and frontier markets equity analyst at Tellimer, said.
"Also, [President] Biden's recognition of the Armenian genocide is a reminder of the potential for US sanctions in the context of less friendly relations."
Mr Kavcioglu was appointed last month after Mr Erdogan fired former governor Naci Agbal, who had stabilised the lira by hiking interest rates by 875 basis points to 19 per cent, the highest of any major economy in the world, in a bid to curb double-digit inflation.
Mr Agbal was the third central bank governor to be dismissed by Mr Erdogan since July 2019.
Previous central bank governors had sold foreign exchange [FX] reserves rather than raise interest rates, which Mr Erdogan opposes.
Turkey has used $165 billion of FX reserves to defend the lira over the past two years and that the country will do so again if needed, Mr Erdogan said last week, according to Bloomberg.
In a state TV interview on Friday, Mr Kavcioglu said the sales helped Turkey to steer through the pandemic.
The central bank's usable reserves [discounting reserves held to cover resident FX deposits] has fallen "to almost zero from the 2019 level of $47bn, equivalent to about 6 per cent of GDP", S&P Global said last month.
In the week after Mr Agbal's dismissal, the amount of FX reserves in Turkey fell by 63.9bn Turkish lira ($7.68bn), the Institute of International Finance's chief economist Robin Brooks said on Twitter on Sunday.
Turkish authorities may be keen to cut interest rates, but with inflation climbing above 16 per cent last month the country will need to maintain its policy rate above this level to retain foreign capital, Mr Malik said.
"It is unlikely they can [cut rates] in an orderly manner in the next few months. But over the next 12 months expectations are for inflation to fall and no doubt they will then seize the opportunity."
The dovish noises coming from the central bank suggests interest rate cuts are in the pipeline, Scott Livermore, chief economist at Oxford Economics, said.
"We see modest easing [in the second half of 2020] but the risk of early/sharper cuts is meaningful," he said.
"Turkey’s net reserve position is negative at around -$60bn and any attempts at intervention erode this further."
Turkey's reserves are already much lower than the country's external financing needs over the next year, Jason Tuvey, a senior emerging markets analyst at Capital Economics, said.
"A further ratcheting up of geopolitical tensions and/or concerns about the direction of policymaking in Turkey could cause the lira to come under severe pressure."
This would make it difficult to meet Mr Erdogan's call for lower rates and pressure could instead build to tighten rates.
"But we suspect that the next port of call would actually be capital controls and import restrictions," Mr Tuvey said.
Key findings of Jenkins report
- Founder of the Muslim Brotherhood, Hassan al Banna, "accepted the political utility of violence"
- Views of key Muslim Brotherhood ideologue, Sayyid Qutb, have “consistently been understood” as permitting “the use of extreme violence in the pursuit of the perfect Islamic society” and “never been institutionally disowned” by the movement.
- Muslim Brotherhood at all levels has repeatedly defended Hamas attacks against Israel, including the use of suicide bombers and the killing of civilians.
- Laying out the report in the House of Commons, David Cameron told MPs: "The main findings of the review support the conclusion that membership of, association with, or influence by the Muslim Brotherhood should be considered as a possible indicator of extremism."
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
Torque: 790Nm from 2,000-3,600rpm
Transmission: 10-speed auto
Fuel consumption: 11.7L/100km
On sale: Now
Price: From Dh590,000
How to improve Arabic reading in early years
One 45-minute class per week in Standard Arabic is not sufficient
The goal should be for grade 1 and 2 students to become fluent readers
Subjects like technology, social studies, science can be taught in later grades
Grade 1 curricula should include oral instruction in Standard Arabic
First graders must regularly practice individual letters and combinations
Time should be slotted in class to read longer passages in early grades
Improve the appearance of textbooks
Revision of curriculum should be undertaken as per research findings
Conjugations of most common verb forms should be taught
Systematic learning of Standard Arabic grammar
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On the menu
First course
▶ Emirati sea bass tartare Yuzu and labneh mayo, avocado, green herbs, fermented tomato water
▶ The Tale of the Oyster Oyster tartare, Bahraini gum berry pickle
Second course
▶ Local mackerel Sourdough crouton, baharat oil, red radish, zaatar mayo
▶ One Flew Over the Cuckoo’s Nest Quail, smoked freekeh, cinnamon cocoa
Third course
▶ Bahraini bouillabaisse Venus clams, local prawns, fishfarm seabream, farro
▶ Lamb 2 ways Braised lamb, crispy lamb chop, bulgur, physalis
Dessert
▶ Lumi Black lemon ice cream, pistachio, pomegranate
▶ Black chocolate bar Dark chocolate, dates, caramel, camel milk ice cream
The Bio
Hometown: Bogota, Colombia
Favourite place to relax in UAE: the desert around Al Mleiha in Sharjah or the eastern mangroves in Abu Dhabi
The one book everyone should read: 100 Years of Solitude by Gabriel Garcia Marquez. It will make your mind fly
Favourite documentary: Chasing Coral by Jeff Orlowski. It's a good reality check about one of the most valued ecosystems for humanity
The biog
Age: 59
From: Giza Governorate, Egypt
Family: A daughter, two sons and wife
Favourite tree: Ghaf
Runner up favourite tree: Frankincense
Favourite place on Sir Bani Yas Island: “I love all of Sir Bani Yas. Every spot of Sir Bani Yas, I love it.”
If you go
The flights
Etihad (etihad.com) flies from Abu Dhabi to Luang Prabang via Bangkok, with a return flight from Chiang Rai via Bangkok for about Dh3,000, including taxes. Emirates and Thai Airways cover the same route, also via Bangkok in both directions, from about Dh2,700.
The cruise
The Gypsy by Mekong Kingdoms has two cruising options: a three-night, four-day trip upstream cruise or a two-night, three-day downstream journey, from US$5,940 (Dh21,814), including meals, selected drinks, excursions and transfers.
The hotels
Accommodation is available in Luang Prabang at the Avani, from $290 (Dh1,065) per night, and at Anantara Golden Triangle Elephant Camp and Resort from $1,080 (Dh3,967) per night, including meals, an activity and transfers.
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COMPANY%20PROFILE
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The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
UAE currency: the story behind the money in your pockets
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SQUAD
Ali Khaseif, Fahad Al Dhanhani, Adel Al Hosani, Mohammed Al Shamsi, Bandar Al Ahbabi, Mohammed Barghash, Salem Rashid, Khalifa Al Hammadi, Shaheen Abdulrahman, Hassan Al Mahrami, Walid Abbas, Mahmoud Khamis, Yousef Jaber, Saeed Ahmed, Majed Sorour, Majed Hassan, Ali Salmeen, Abdullah Ramadan, Khalil Al Hammadi, Fabio De Lima, Khalfan Mubarak, Tahnoun Al Zaabi, Ali Saleh, Caio Canedo, Muhammed Jumah, Ali Mabkhout, Sebastian Tagliabue, Zayed Al Ameri
