immac

From TDN:

Turkish lira goes from first to worst
Tuesday, April 29, 2008


As inflation rises and the specter of political instability looms, the gains of the Turkish lira evaporate. The currency gained a record 21 percent last year, but this year, losses amount to nearly 9 percent. Analysts agree that 2008 will not be a good year for the YTL

EWA KRUKOWSKA
WARSAW - Bloomberg

Turkey's ruling Justice and Development Party (AKP) touts the Turkish lira's (YTL) growing “prestige” on its Web site following the currency's record 21 percent rally in 2007. But those gains are evaporating as inflation and political instability grips the nation. The YTL has fallen 8.8 percent against the U.S. dollar this year, to 1.2941.
Once-bullish traders lured by a benchmark interest rate of 15.25 percent are dumping the currency as the Constitutional Court weighs an attempt to remove Prime Minister Recep Tayyip Erdoğan and his government from office. The decline is undermining the central bank's efforts to curb inflation, which rose at a 9.2 percent rate in March, more than any member of the EU. Merrill Lynch and JPMorgan Chase recommend investors either avoid or reduce their holdings of Turkish assets.

“It's not going to be a good year for the YTL because of deepening political uncertainty and global risk aversion, which primarily hurts countries with big current-account deficits,” said Yarkın Cebeci, an economist in Istanbul at JPMorgan.

Second after the krona:

The YTL's decline since January is more than all emerging-market currencies except the Icelandic krona, which is down 12 percent, and the South African rand. Trading in options shows the YTL, a bellwether for emerging markets, will be the second-riskiest currency to own over the next 12 months after the rand.

Closing the ruling party and banning Erdoğan and President Abdullah Gül from public life for at least five years may mean a return to fractious coalition governments that helped spark a financial crisis in 2001, Jean-Dominique Butikofer, who helps manage about $725 million as head of emerging-market debt at Union Bancaire Privee in Zurich, said this month. The risk is that political conflict will distract the government from containing inflation and reducing the budget deficit, according to İlker Domaç, an economist in Istanbul at Citigroup.

“Recent political developments are likely to complicate policy-making and the investment climate,” Domaç said. “The deteriorating political backdrop will in turn undermine the prospects for restoring fiscal discipline and reviving the reform agenda.”

The YTL fell 2.5 percent on March 17, the biggest decline in seven months, after the lawsuit was presented March 14. A day later, Merrill Lynch reduced the amount of 10-year Turkish bonds in a model emerging-markets debt portfolio to 7.4 percent from 9.9 percent.

Taking risks:

“Turkey has always been a risky place, but high returns are the pay-off for those who take the risk,” said Michael Ganske, a strategist in London at Commerzbank, Germany's second-biggest lender. While investors are inclined to bet against the YTL, “we expect the AKP eventually to stay in place” and foreign direct investment “to underpin the currency,” he said. The YTL may advance to 1.25 per dollar by year-end, he predicted. JPMorgan's Cebeci said it may weaken to 1.40 before rebounding to 1.32 by the end of the year.

JPMorgan on March 28 cut Turkish bonds to “underweight,” meaning it recommends investors hold a smaller percentage of the securities than contained in benchmark indexes, from “market weight.” Standard & Poor's changed its outlook on the nation's BB- credit rating to “negative” from “stable” on April 4, indicating a downgrade is the most likely next step.

“No one knows how the political situation will evolve, how much time it will take the court to decide or what the verdict will be,” said Türker Hamzaoğlu, an economist in London at Merrill Lynch. “The political tension coincides with a global crisis in financial markets, and this all weighs on the Turkish currency and assets.”

A weaker currency may make it more difficult to finance the current-account deficit, which the central bank said widened to a record $37.4 billion in 2007.

The Turkish stock market's capitalization has fallen to $197 billion, from $282 billion in December, Bloomberg data show

jcrian

Once-bullish traders lured by a benchmark interest rate of 15.25 percent are dumping the currency as the Constitutional Court weighs an attempt to remove Prime Minister Recep Tayyip Erdoğan and his government from office. The decline is undermining the central bank's efforts to curb inflation, which rose at a 9.2 percent rate in March, more than any member of the EU. Merrill Lynch and JPMorgan Chase recommend investors either avoid or reduce their holdings of Turkish assets.

So much for the high interest rates on savings.

Mushroom

Poor for the savers, great for the holidaymakers.

kevkj

I dont claim to be a financial expert but i think a few of the comments above are wrong.I think your not concentrating.

Savers will gain if the YTL weakens and turkish interest rates go up.

I think by July the YTL -£ will be about 3 again or above so i wouldnt go changing pounds now.

I read the following article today and it seems that Turkish interest rates will rise weakening the Lira .
Bank interest rates for savers in Turkey will go up.

In the UK interest rates will fall strengtheing the £ and again weakening the YTL.

Bloomberg


Turkey's Central Bank said it will probably raise the benchmark interest rate this year after “factors outside its control” such as higher oil and food prices made its inflation target unobtainable.

The bank has missed the 4 percent inflation target for two years and consumer-price growth will probably be 9.3 percent at year-end, Governor Durmuş Yılmaz said in Ankara yesterday. That forecast assumes that “interest rates are increased in a steady and measured fashion until the middle of the year and held unchanged for the rest of the year,” he said.

Employers should take the new forecast, and not the inflation target, as a guide for setting prices and wage agreements, Yılmaz said. The bank previously told companies to treat the target as a benchmark. The previous inflation report in December, forecast a range of between 4.1 percent and 6.9 percent for the year-end.

“It means a loss of prestige for us but we remain determined” to achieve the inflation target, Yılmaz said. The bank had discussed changing the target and decided it “would be meaningless for this year.”

The bank cut the interest rate by 2.25 percentage points between September and February to 15.25 percent. Turkey's inflation goals are set under a $10 billion International Monetary Fund (IMF) loan accord that expires May 10. Talks on a new arrangement with the fund will take a few months to complete, Economy Minister Mehmet Şimşek said Apr. 18.



Inflation target:

The bank may change its inflation target for 2009 “but only after consulting with the government and the IMF,” Yarkın Cebeci, Istanbul-based economist for JPMorgan Chase & Co. wrote in a note to investors. “We think that the bank might make 25 or 50 percentage point hikes” over the next three months.

Rising expectations for inflation and a drop in the value of the Turkish lira (YTL) further threaten to accelerate consumer-price growth, Yılmaz said.

Inflation of 9.2 percent in March exceeded the bank's target band, obliging it to issue a public explanation that was released yesterday. The YTL has fallen about 10 percent against the dollar this year, driving up import costs and adding to pressure from rising oil and food prices.

Turkey imports almost all of its energy needs. Rising global oil and gas prices may add as much as 5 percentage points to inflation in 2009, Yılmaz said.

While inflation in 2007 slowed to 8.4 percent from 9.7 percent at the end of the previous year, both figures were double the targets set under the IMF accord. The bank kept the main rate unchanged at its Apr. 17 meeting and said it was ready to reverse the previous reductions to keep inflation under control.

The bank will meet to discuss monetary policy May 15. Policy makers could opt to change the benchmark rate outside the program of monthly meetings, Yılmaz said yesterday.

Sylvia

Is the Lira on its way back up 2.47ytl on BBC

Ken and Veronica

From XE.com

Live rates at 2008.07.02 08:54:36 UTC
1.00 GBP = 2.45787 TRY
United Kingdom Pounds Turkey New Lira
1 GBP = 2.45787 TRY 1 TRY = 0.406857 GBP