President Recep Tayyip Erdogan has been granted emergency powers that give him broad authority to act when Turkey’s financial stability is deemed to be under threat. Parliament voted late on Wednesday to authorise Erdogan to take all the necessary measures in case of a “negative development” that could spread across the entire financial system. It also approved the formation of the Financial Stability and Development Committee that will work to co-ordinate efforts against risks to financial stability and security, according to the law, set to go into effect following the president’s approval. Turkey is strengthening its defences six months after the lira’s crash rippled through the economy.
Under the law, “the president is authorised and responsible for implementation of all measures beyond the powers” of members of the Financial Stability and Development Committee, which will be formed under the supervision of the Treasury and Finance Ministry. Turkey’s economy is still reeling from the currency meltdown that the authorities blamed on a foreign conspiracy amid a diplomatic crisis with the US.Separately, Turkish lira traders have some risks to navigate over the next few months but the prospect of a central bank misstep before municipal elections in March may no longer be one of them.
By leaving interest rates unchanged on Wednesday and keeping its rhetoric over the dismal inflation outlook hawkish, the central bank is helping dispel speculation it could usher in a new wave of currency depreciation with monetary easing before the vote on March 31. The lira “seems to be free of the risk of a premature cut ahead of the local elections,” Inan Demir, an economist and Nomura Plc in London, said in a note. The prospect of looser policy had weighed on the lira. Until Wednesday’s move to leave the benchmark at 24% for a third consecutive meeting, it was off to the worst start among emerging markets this year. But the currency strengthened after the announcement to lead an advance among peers. The central bank’s next decision is on March 6.
The Turkish currency gained more than 2% against the greenback on Wednesday, trimming its losses for the year to below 1%. Nomura sees the currency extending its appreciation 5.15 per dollar. On Wednesday, the Monetary Policy Committee led by Governor Murat Cetinkaya kept its language largely unchanged from last month’s statement, vowing to deliver “further monetary tightening” if necessary.
Sources and photo-credits: Bloomberg, Gulf Times