World Markets

BUZZ-COMMENT-Turkish lira's failure to rise is a huge problem

Credit: REUTERS/MURAD SEZER

Current conditions, which are extremely favourable for risk-taking, suit Turkey's lira but it's not rising. A currency that cannot rise in favourable conditions will probably drop, though external conditions could still fuel a rally.

May 7 (Reuters) - Current conditions, which are extremely favourable for risk-taking, suit Turkey's lira but it's not rising. A currency that cannot rise in favourable conditions will probably drop, though external conditions could still fuel a rally.

Turkey has a big inflation issue and a central bank that cannot easily deal with that problem and that's weighed on the lira.

Volatility has slumped, which make Turkey's 19 percent interest rate, the highest globally for any freely traded currency, a big draw for investors.

However, they haven't bought following two consecutive interest rate holds by Turkey's central Bank, at a time when they are buying other risky currencies supported by far less attractive interest rates on the back of huge commodity and stock market rallies. [nL1N2MU0CA]

If lira cannot rise now it probably never will, and should Turkey's authorities be frustrated by lira's lack of reaction to steady rates, and instead seek economic stimulus by cutting rates, it may plummet.

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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

((jeremy.boulton@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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