Lira slide a problem for Turkey's economy: Moody's
ISTANBUL--Moody's Investors Service said Monday that ongoing lira weakness is especially problematic for Turkey's economy because of its high degree of external vulnerability and low foreign-exchange reserves, a credit negative for the sovereign.
Key officials said last week that they stand ready to take action if necessary to combat the lira's decline, Moody's said in a commentary.
"However, we believe that the lira is susceptible to renewed pressure if the authorities delay in following up these statements with interest rate hikes and the next regular meeting of the Monetary Policy Committee is still almost two weeks away," Moody's said.
"This tense situation is an important test of the delicate balance between Turkey's fundamental strength from its dynamic economy and very strong fiscal metrics--and its high and rising external vulnerabi lity," Moody's said.
In March, Moody's cut Turkey's sovereign ratings further into junk territory and changed its outlook to stable from negative, citing the continued loss of institutional strength and the increased risk of an external shock.
Turkish lira recently came under fresh pressure as investors have been unnerved by Turkey's high inflation and a large current-account deficit, which measures Turkey's short-term external financing needs.
Turkey's inflation marginally slowed to 10.23% in March from 10.26% in February, but was more than double the central bank's 5% inflation target. The country's 12-month rolling current-account deficit in February rose to $53.3 billion, close to 6% of gross domestic product, from $51.8 billion in January.
The Turkish currency's losses were exacerbated by an emerging markets rout on geopolitics risks and trade war fears.
Turkish lira has plunged 7% against the dollar and 10% against the euro since the start of this year.
Turkey's central bank governor Murat Cetinkaya said last week that the central bank is closely following developments in inflation and may deliver additional monetary tightening if deemed necessary.
The central bank's next monetary policy meeting is due on April 25.
"The other factor behind Turkey's high inflation and weak external position is the overheating economy," Moody's said.
Turkey's economy grew by 7.4% last year, becoming the fastest-growing economy among G20 countries. President Recep Tayyip Erdogan repeatedly called for lower interest rates to spur economic growth and investment.
"The government appears determined to keep the economy growing rapidly ahead of national elections scheduled for November 2019, regardless of the costs," Moody's said.
Write to Yeliz Candemir at email@example.comSource: Google News Turkey | Netizen 24 Turkey