Turkey’s Simsek Dismisses Post-Election Lira Doom Scenario – BNN Bloomberg

(Bloomberg) — Turkey will see increasing foreign inflows after the local elections in March, which will prevent real depreciation of the lira, according to Treasury and Finance Minister Mehmet Simsek.

Some investors fear a repeat of the steep depreciation seen after Turkey’s presidential and general elections at the end of May. The currency weakened by more than 20% in the following month after the central bank reduced its interventions to keep the exchange rate steady in the run-up to the poll. 

“The policy set we are implementing now is making the lira attractive,” Simsek said in an interview with Bloomberg HT television on Monday. “We want the lira to be neither overvalued nor undervalued.” 

A weaker lira could complicate the central bank’s efforts to curb inflation, which quickened for a fourth straight month in February to a 15-month high of 67.1% on an annual basis. Policy makers expect annual inflation to peak above 70% in May but left interest rates unchanged last month, after delivering a cumulative 3,650 basis points of tightening in eight steps. 

There are also concerns of looser fiscal policy ahead of the election, in which President Recep Tayyip Erdogan’s ruling party will try to win back opposition-held cities such as Istanbul and Ankara.

Read More: Turkey’s Inflation Spirals Closer to 70% in Worry for Peak Rates

The central bank described the acceleration in price increases this year as a temporary up-tick, a view echoed by Simsek, who said he expects the inflation rate to return to the projected path by March.

During Group-of-20 meetings last week Simsek said he had held talks with the World Bank and other international lenders, and they are expected to invest in Turkey after the vote.  

Lira has lost 6% against the dollar so far this year while inflation hit 11.5% in the first two months of the year. The currency was trading 0.5% weaker at 31.51 per U.S. dollar as of 13:02 p.m. in Istanbul.

Simsek said the monetary authority remained in the foreign currency market only to meet demand coming from an FX-protected deposit program. The program, known as KKM, was introduced in December 2021 to help reverse dollarization of deposits and to boost the lira.  

Lira Lifeline Became $124 Billion Problem That Haunts Turkey

A declining current account deficit, maintenance of fiscal discipline and removal of election uncertainty will also be supportive of the lira, Simsek said, adding his government doesn’t have a target for the exchange rate. 

Other highlights from Simsek’s interview:

• There won’t be across-the-board increases in tax rates such as in income tax, corporation tax or value-added tax.
• The current-account deficit will narrow to between $30 billion and $35 billion as of February/March.
• Turkey aims to increase its reserves at least to the level of short-term external debt.

–With assistance from Tugce Ozsoy.

(Updates with details from inflation data starting from fourth paragraph.)

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