Turkey seeks to reassure rattled investors

AFP – The government’s pointman on the economy on Wednesday said he had assured foreign investors Turkey was committed to fighting inflation and implementing reform after the lira plunged to historic lows.

Deputy Prime Minister Mehmet Simsek on Tuesday met dozens of asset managers and bankers in London, to bolster their faith in Turkey’s economy after what many analysts saw as a currency crisis last week.

The lira has lost over 10 percent in value against the dollar in the last month alone and appeared in freefall just ahead of June 24 elections until an emergency rate hike by the central bank on May 23.

His visit came two weeks after a trip to London by Erdogan, who triggered anxiety among investors by declaring he wanted a greater say in monetary policy if he won the elections.

"Our contacts in London were very productive," Simsek, who was accompanied by central bank chief Murat Cetinkaya, wrote on Twitter.

He said Turkey had strengthened its set of economic policy instruments and had started a new process of "rebalancing" the economy.

"The most important priority is fighting inflation and the current account deficit," he said. "After the elections we will further accelerate structural reforms."

Turkey’s current account deficit had ballooned to $4.8 billion in March while inflation was 10.85 percent in April.

The initial reaction seemed positive with the lira climbing 1.3 percent in value against the dollar to trade at 4.5 to the greenback. Last week, it had tested 5 to the dollar.

Investors have been concerned that the economy is overheating and the government is not doing enough to fight inflation.

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Erdogan has also not helped matters but frequently expressing the unorthodox belief that lower interest rates will lead to lower inflation and even describing rates as the "mother and father of all evil".

Economists at Commerzbank described Simsek’s trip as "damage limitation" after the visit by Erdogan earlier this month.

They said Simsek had informed investors that the central bank was ready to raise rates again next month if May inflation figures show a noticeable acceleration.

After Turkey’s stellar growth of 7.4 percent in 2017, economists are now awaiting a slowdown.

Ratings agency Moody’s said Wednesday it had slashed its growth forecasts for Turkey to 2.5 percent in 2018 and 2.0 in 2019 from 4 percent and 3.5 previously.

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