Turkish lira rebounds after Putin signals progress in talks

  • The conflict in Ukraine fuels inflation and current accounts worry
  • Currency 10% weaker in 2022, halving in one year
  • Forecasts on growth, inflation, the lira are deteriorating

ISTANBUL, March 11 (Reuters) – The lira rebounded from an earlier tumble to rebound 1.5% on Friday, benefiting along with other emerging market currencies after Russian President Vladimir Putin said he saw ” positive changes” in the talks with Ukraine.

The lira has suffered since Russia invaded Ukraine, as the economic fallout from sanctions against Moscow is expected to trigger higher inflation and a larger current account deficit in Turkey. Read more

The currency rose 1.5% on Friday afternoon, touching 14.65 against the dollar at 14.13 GMT, having previously weakened 0.8% to just under 15. It has fallen for the past eight consecutive sessions .

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The rally came after Putin said progress had been made in Moscow’s talks with Ukraine. “There are some positive changes, the negotiators on our side tell me. I’ll talk about all that later,” he said. Read more

The lira is still down 10% this year and is almost half its value from a year ago, after losing 44% in 2021. Western sanctions on Russia have sent prices soaring energy, pushing up Turkey’s already hefty import bill.

Soaring gas, oil and grain prices have fueled Turkey’s runaway inflation and widened its current account deficit. Inflation exceeded 54% in February and is expected to remain high throughout the year.

Reflecting all this, the January deficit, although lower than expected, widened to $7.11 billion – its highest level in four years – from $3.84 billion a month earlier. Read more

This threatens to derail President Tayyip Erdogan’s new economic plan, which aims to run a current account surplus and keep interest rates low to boost growth, exports and jobs.

Meanwhile, factory output growth in January slowed sharply to 7.6% year-on-year, below forecasts and down 2.4% from the previous month after an energy supply disruption. , according to the data.

The negative backdrop also pushed consumer price inflation forecasts at the end of 2022 to 40.47% from 34.06% a month earlier, according to a central bank survey of market participants. The lira-dollar forecast at the end of 2022 rose to 16.6774 from 16.0431 a month earlier.

The conflict in Ukraine also hit growth expectations. Goldman Sachs lowered its 2022 GDP forecast to 2% from 3% and its 2023 forecast to 2.5% from 3.5%. It also revised its current account deficit forecast for 2022 to 2.8% of GDP from 1.5%.

The pound’s fall last year was driven by a cycle of central bank easing that began in September and cut the benchmark rate by 500 basis points to 14%.

The currency hit a record low of 18.4 on December 20 before the government unveiled major foreign exchange market interventions and a program to protect lira deposits against depreciation – policies that helped stabilize markets until the Russian invasion.

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Additional reporting by Jonathan Spicer and Ali Kucukgocmen; Editing by Ece Toksabay and Raissa Kasolowsky

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