Turkish assets: lira depreciates after new finance minister appointed

GOn the other hand, markets reacted to statements made on Monday by Turkey’s new super minister of economy and finance, Mehmet Simsek. Despite the pithy words of the new “economic czar” on Sunday, the lira declined on Monday. If on Friday it was necessary to pay 20.9 lira for the dollar, then at the beginning of the week it was already 21.22 lira, which became a new record low. Government bonds denominated in dollars rose in price. The shares were in demand on the Istanbul Stock Exchange. The ISE 100 index has risen about 20 percent since May 25, shortly before Erdogan’s re-election, and is close to all-time highs again.

Simsek said Sunday: “Fiscal discipline and price stability for sustained high growth will be our top priorities.” Fiscal policy and structural reforms will help the central bank lower inflation. It hit nearly 86 percent in October, its highest level in 24 years. Economists also blame the failed policy of lowering interest rates by the central bank, under the influence of President Recep Tayyip Erdogan.

In May, the rise in the cost of living slowed down. It was 39.6 percent after 43.7 percent the previous month, according to data released by the statistical service on Monday. However, the figures are skewed, as the government allowed the population to provide up to 25 cubic meters of gas free of charge during the pre-election month of May. The price of natural gas, which accounts for 2.9 percent of the inflation basket, was set at zero.

House prices, including natural gas, fell 13.8% on a monthly basis. It was the only category where prices recorded a decline, dropping 2.09 points on a monthly basis. Spending on clothing and footwear, as well as prices for restaurants and hotels, rose the most. The price index of domestic producers in May was 40.76 percent higher than the value of the previous year.

A reversal in economic policy is expected from the new finance minister, including a return to raising interest rates, which should also stabilize the troubled lira. “Turkey has no other choice but to return to a rational basis,” he said. Going forward, priority will be given to “macroeconomic financial stability”. However, the lira rates at the beginning of the week show that the shattered confidence in the financial markets cannot be restored day by day.

Source: Frantfurter Allgemeine

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