Lira should gain ground against dollar: Economist

By Abdulselam Durdak

FRANKFURT (AA) - Turkey still has a structurally dynamic economy with a high growth potential, even if today it hit a bump, said the chief eurozone economist of ING Bank on Thursday.

Peter Vanden Houte told Anadolu Agency that several adverse elements had come together to lower the value of the Turkish lira against the U.S. dollar.

"First, of course, there has been the election of Donald Trump that has led to some capital flight out of emerging markets," said Houte.

Emerging markets’ local currencies have been weakening against the dollar since November’s U.S. presidential elections. The lira’s value has dropped around 10 percent since the beginning of 2017.

Turning to other factors facing Turkey, Houte said, "On top of that Turkey has a very large current account deficit and is a commodity importer just at a time that commodity prices have been going up."

"International investors perceive a bigger geopolitical risk in Turkey, as it is close to a war zone, Syria, and the aborted [July 2016] coup has raised questions about political stability," he said.

- Tight spot on interest rates

Houte stated that the lira’s weakening was also dependent on capital outflow linked with the economy's negative growth in the third quarter of 2016.

The country's gross domestic product fell 1.8 percent in the third quarter, compared with the same quarter in 2015, to reach 655.4 billion Turkish liras ($221.6 billion) at current prices, according to a Turkish Statistical Institute report last month.

"Foreign investors are very sensitive to risk, especially in emerging markets. It is likely that because of these factors some of them have been withdrawing their money," Houte added.

The veteran economist underlined that the current short-term volatility in foreign exchange rates puts the Turkish Central Bank in a very difficult position.

"It should raise interest rates to stop the capital outflow, but at the same time economic growth has become negative, which would plead for lower rates," he said.

Houte stressed that the lira should strengthen somewhat from its current depressed levels in the long run, adding:

"One shouldn’t forget that Turkey still has a structurally dynamic economy with a high growth potential, even if today it is experiencing a weak spot."

*Muhammed Ali Gurtas contributed to this report from Ankara.