Turkish Lira Declines – Expectations and Latest Data

The pound was slightly weaker on Monday. The Turkish Minister of Finance said he was waiting for about $10 billion in forex bank deposits to convert into lira because of the new law. This even exempts such deposits from corporate tax. According to the Minister of Finance, inflation will increase to about 40% in the coming months. This is lower than most estimates; That the central bank has no plans to raise interest rates.

At 0542 GMT, the lira was trading at 13.49. It weakened 0.15% as it closed Friday at 13.4695. Last year it fell by 44%; Since the central bank cut its policy by 500 basis points in September; Up to 14% in total. However, it remained stable this month.

Nebati met with economists on Saturday to make a presentation on Turkey’s economic model; This, he said, aimed at resolving the current account deficit problem overcoming the middle-income trap, and praising Turkey’s global value chain. In a statement, the ministry noted that the Nebati project banking would accelerate; Consequently, value-added tax will simplify.

The Turkish Lira and The Consequences of A Sharp Rise in Inflation

Last week, the Turkish parliament approved a law under which the Lira deposits, That converted from forex to a currency support scheme will be exempt from corporate income tax on conversion earnings. Central bank data show that companies have $90 billion in foreign currency bank deposits.

Nebati noted that the lira deposits in the scheme reached 184 billion lire by January 21st. And conversion into forex lira due to corporate tax shifts could reach $20 billion; On Treasury estimates. President Erdogan announced the deposit scheme in December; Depositors reimburse for any loss of value of the lira, which arose during the deposit term. Nebati said the most critical priority for the country is to reduce inflation; Which rose to 36% in December.

Economists see inflation reaching 50% in the first half of the year. As the competent persons say, Nebati did not expect so much inflation. However, in the next three months, inflation may rise to around 40%; Before, it further falls sharply, up to 30% by the end of the year. Nebati predicts inflation will fall to single digits in mid-2023, ahead of the scheduled election. The statement said there would be no retreat from the central bank’s current monetary policy. Consequently, no one should expect rates to rise because the policy rate’s importance decreased.