Turkey sharply cut its growth forecasts for this year and next on Thursday, a reduction that failed to mollify investors who wanted a more sober assessment of the fragile economy and a sweeping plan to help banks, Reuters reports.
The lira currency has plunged by 40 percent this year on concerns about President Tayyip Erdogan’s influence over monetary policy and a rift with the United States. The sell-off has shaken global financial markets and raised the prospect of a banking crisis at home.
Markets had been hoping that Finance Minister Berat Albayrak would use Thursday’s announcement of a new medium-term economic programme to signal an unambiguous break from the credit-fuelled growth that has characterised Turkey over the last decade and a half under Erdogan’s rule.
Albayrak said growth would be 3.8 percent this year and 2.3 percent in 2019, both revised down from forecasts of 5.5 percent. He did not deliver the big plans for the banking industry that some analysts had been hoping for, particularly, the creation of a “bad bank” vehicle to take over non-performing loans.
“At the moment, the programme is a disappointment. First, when you look at the growth forecast, the current account deficit forecast, they are too ambitious,” said Guillaume Tresca, a senior EM strategist at Credit Agricole.
“We don’t have anything new, regarding a bad bank, regarding the treatment of (non-performing loans), regarding the foreign-exchange funding of the banking system or the foreign-exchange funding of the corporates. It is lacking details and it is lacking news.”
Following the presentation, the chairman of Turkey’s BDDK banking watchdog said there would not be a transfer of problem loans to another institution.
The lira TRYTOM=D3 fell as far as 6.3750 after the presentation, from 6.2541 on Wednesday. It later recovered losses and was at 6.1850 in New York trade.
The currency has failed to sustain much of the gains made since the central bank’s mammoth interest rate hike of 6.25 percentage points last week, underscoring the difficulty policymakers face in putting a floor under the lira and restoring confidence.