Turkey’s Looming Debt Repayments Test Lira in High-Stakes Week
A tourist changes Turkish lira banknotes at the counter of a currency exchange bureau in Istanbul, Turkey, on Monday, March 22, 2021. Turkey's stocks, bonds and the lira tumbled as the shock dismissal of the central bank chief triggered concern the country is headed for a fresh bout of currency turbulence. , Bloomberg
Kerim Karakaya, Cagan Koc and Burhan Yuksekkas, Bloomberg News
1h ago
(Bloomberg) -- Add Turkey’s hefty debt repayments to the list of risks for the lira, which is faltering amid the prospect of another interest-rate cut this week.
Turkish companies and government have to repay a $13 billion in external debt in the last two months of the year, according to official data. More than half -- $8 billion -- is set to mature in November, the biggest amount due over the next 10 months, according to the latest available data.
Such repayments tend to increase demand for foreign currency, which in turn adds pressure on the lira. And it underscores why cutting interest rates aggressively is a risk for the economy, which relies heavily on external financing.
Under pressure from President Recep Tayyip Erdogan, the central bank has delivered two consecutive -- and unexpected -- interest-rate cuts since September, sending the lira down more than 25% this year against the dollar to a record low.
The combination of rising debt repayments in November and December and the prospect of lower rates as soon as this week may lead to more weakness in the currency, according to Ibrahim Aksoy, Istanbul-based chief economist at HSBC Asset Management Turkey.
Aksoy, who has been the top forecaster for Turkish rate decisions in Bloomberg surveys for the past two years, expects a 100-basis-point reduction to 15% when policy makers meet on Thursday.
That’s in line with expectations in the central bank’s monthly survey of 48 people from finance and corporate sectors, as well as the median estimate in a Bloomberg poll.
The currency traded at 10.0182 as of 8:48 a.m. in New York, after surpassing the psychologically important level of 10 on Friday. Options traders see more than 50% probability of the lira extending declines to 10.5 versus the dollar by year-end, according to data compiled by Bloomberg.
Gas Demand
Beyond debt repayments, an increase in Turkey’s demand for natural gas from overseas sources is also fueling a need for dollars, feeding through to further weakness in the local currency.
The government expects gas consumption to rise 25% to a record to 60 billion cubic meters this year. Surging global energy prices are forcing state-owned importer Botas to boost its purchases from the spot market at a higher cost.
To alleviate the impact on the market, the central bank started the direct sale of foreign currency to Botas. The monetary authority supplied the company with $258 million in October, after halting sales in the preceding three months.
Last month, Turkey boosted its liquefied natural gas imports from the U.S. to six cargoes after securing five such shipments in the previous seven months, a sign that it’s gearing up to meet winter demand.
©2021 Bloomberg L.P.
Weak Erdogan!
A tourist changes Turkish lira banknotes at the counter of a currency exchange bureau in Istanbul, Turkey, on Monday, March 22, 2021. Turkey's stocks, bonds and the lira tumbled as the shock dismissal of the central bank chief triggered concern the country is headed for a fresh bout of currency turbulence. , Bloomberg
Kerim Karakaya, Cagan Koc and Burhan Yuksekkas, Bloomberg News
1h ago
(Bloomberg) -- Add Turkey’s hefty debt repayments to the list of risks for the lira, which is faltering amid the prospect of another interest-rate cut this week.
Turkish companies and government have to repay a $13 billion in external debt in the last two months of the year, according to official data. More than half -- $8 billion -- is set to mature in November, the biggest amount due over the next 10 months, according to the latest available data.
Such repayments tend to increase demand for foreign currency, which in turn adds pressure on the lira. And it underscores why cutting interest rates aggressively is a risk for the economy, which relies heavily on external financing.
Under pressure from President Recep Tayyip Erdogan, the central bank has delivered two consecutive -- and unexpected -- interest-rate cuts since September, sending the lira down more than 25% this year against the dollar to a record low.
The combination of rising debt repayments in November and December and the prospect of lower rates as soon as this week may lead to more weakness in the currency, according to Ibrahim Aksoy, Istanbul-based chief economist at HSBC Asset Management Turkey.
Aksoy, who has been the top forecaster for Turkish rate decisions in Bloomberg surveys for the past two years, expects a 100-basis-point reduction to 15% when policy makers meet on Thursday.
That’s in line with expectations in the central bank’s monthly survey of 48 people from finance and corporate sectors, as well as the median estimate in a Bloomberg poll.
The currency traded at 10.0182 as of 8:48 a.m. in New York, after surpassing the psychologically important level of 10 on Friday. Options traders see more than 50% probability of the lira extending declines to 10.5 versus the dollar by year-end, according to data compiled by Bloomberg.
Gas Demand
Beyond debt repayments, an increase in Turkey’s demand for natural gas from overseas sources is also fueling a need for dollars, feeding through to further weakness in the local currency.
The government expects gas consumption to rise 25% to a record to 60 billion cubic meters this year. Surging global energy prices are forcing state-owned importer Botas to boost its purchases from the spot market at a higher cost.
To alleviate the impact on the market, the central bank started the direct sale of foreign currency to Botas. The monetary authority supplied the company with $258 million in October, after halting sales in the preceding three months.
Last month, Turkey boosted its liquefied natural gas imports from the U.S. to six cargoes after securing five such shipments in the previous seven months, a sign that it’s gearing up to meet winter demand.
©2021 Bloomberg L.P.
Weak Erdogan!
