Analysts forecast further Turkish lira appreciation

By Fatih Erkan Dogan and Muhammed Ali Gurtas

ANKARA (AA) - After suffering sharp losses since the coup bid of July 2016 the Turkish lira has become the best performing emerging-market currency against U.S. dollar in the last three weeks, data revealed on Tuesday.

The Turkish lira gained 3.83 percent in value as of market close on Monday, topping the list of best performing emerging-market currencies in relation to the U.S. dollar.

The U.S. dollar/Turkish lira rate, which was at 3.52 at the beginning of the year, later sharply surged to an historic high of 3.9422. Following the intervention of Central Bank of Turkey, the rate dropped as low as 3.6132.

During the same period, the Russian ruble gained 3.44 percent; the Brazilian real 3.16 percent; the South African rand 2.73 percent; the Mexican peso 1.75 percent and Indian rupiah 0.8 percent, all against the U.S. dollar.

The current rate was largely in line with the market forecast of Netherlands-based Rabobank which foresaw a 3.59-level in a report published on Jan. 30.

Piotr Matys, emerging-market strategist at Rabobank, told Anadolu Agency the Turkish lira performed positively due to a fresh wave of capital inflows.

“After the lira plunged to a record low earlier this year, it was only a matter of time [until] opportunistic foreign investors decided to deploy their capital,” Matys said.

“After the central bank tightened liquidity and the lira regained composure, demand for local stocks has increased,” he added.

-Referendum

Referring to the political atmosphere in Turkey, Matys said a further recovery in sentiment towards Turkish markets is likely after an April referendum on a new constitution.

He said if the ruling Justice and Development (AK) Party “focuses on the economy after the referendum on the new constitution, sentiment towards Turkish assets should improve further amongst foreign investors”.

“Consequently, our end-year forecast for USD/TRY is currently set at 3.40,” Matys added.

SAXO Capital Markets strategist Cuneyt Paksoy recalled how U.S. dollar/lira rate rapidly reached 3.94 during the period which started with the U.S. presidential election and ended with the publication of rating agency Fitch's report about Turkey.

"The exchange rate … considerably recovered after the [Turkish] central bank had taken rational steps," Paksoy told Anadolu Agency.

Describing the lira’s recovery process as “very normal”, Paksoy said “excessive purchasing potential played a serious role in closing the gap between the lira and other [emerging market currencies].

He also said the Central Bank's determined actions to tighten monetary policy -- plus the government's further structural reforms -- would be decisive in determining the position of the Turkish lira.

"In terms of financial stability, the country may achieve notable gains in the mid-run with a proper management of the recently-founded … sovereign wealth fund," he added.