Turkish Lira Has Collapsed 10% To Record Low Since Fed Taper; External Funding Needs Remain High

While all eyes are transfixed on US equities - do we buy the dip now... or now? The rest of the world has been a little less exuberant. From China's 6 month lows to Argentina currency collapse, it's not been pretty but Erdogan and his ongoing totalitarianisation of Turkey has seen capital flight accelerate and plunge the Lira by 10% since the Fed announced its Taper in mid-December. The Turkish Lira has tumbled 27% in the last year - Abe and Kuroda would be proud - but for Turkey this is bad 'capital flight' news.


Will the trend continue? It's unclear as little looks to stabilize the political situation but BofAML's Macneil Curry has just cut his long (having reached profit target) and that may slow the momentum. External funding requirements remain extremely high for Turkey and as MS notes, the political outlook looks hazy.



BofAML's Macneil Curry adds:

Closing our long $/TRY position

We are closing out our long $/TRY position, as the pair has reached our upside objective of 2.2161. On Dec-19, we recommended going long $/TRY at 2.0715, targeting 2.2161.

The original trade - posted Dec 19th...

This target has been hit; we therefore close out this position.


External funding requirements remain high


But as Morgan Stanley notes, The Political Outlook is Hazy (at best)...

Growth is likely to slow down on political concerns, deteriorating consumer and business sentiment and weak investment spending. We expect the CBT to tighten policy further to address the credibility gap, volatility in the currency and risks against financial stability. The political agenda will be busy throughout the year, with local elections in late March carrying high significance as a first true test of popularity for the government since the Gezi Park demonstrations and the graft probe.


Inflation is likely to stay in the 7-8%Y range for most of the year, with significant upside risks from currency weakness and the delayed utility price adjustments. We expect the 5%Y target to be missed by a wide margin in 2014 as well. Budgetary targets might be missed slightly, but the fiscal performance should remain robust and the debt/GDP ratio should decline further to around 34% of GDP.


The current account deficit will likely decline gradually from 6.7% of GDP and stay around 6%. Given the high external financing requirement, the currency will remain under pressure and the CBT’s reaction will be key in setting the course, in our view. At any rate, we expect a challenging year for funding the external gap. We do not expect any rating downgrade, but recent political events have raised the credit risk noticeably.

Of course, today's actions won;t help with any stability...

  • Turkey Removes Bank Regulator Deputy Chief, Anatolia Says

But apart from that, it's all going great following the Fed taper...