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Turkish lira forecast to drop further despite Black Sea find

Investors particularly want to see whether the central bank will be free from political pressure so it can deliver another rate increase and bring inflation down

The lira is expected to continue its slide against the dollar and the euro despite the announcement of a major Black Sea gas deposit discovery by Turkish President Recep Tayyip Erdogan on Friday.

The Turkish lira jumped briefly ahead of the announcement as Erdogan had broadcast it as a “historic change” for Turkey’s sagging economy.

But the announcement itself did not impress forex traders, and the lira slid back to its previous levels of 7.33 to a dollar, 8.65 to the euro, and 9.60 to the British pound.

Technical analysts, who base forecasts purely on price movements, forecast that the lira will again hit a record 7.4 level against the dollar, but will hit resistance around that level in the short-term. In the long term, these analysts see the lira reaching well past eight to the dollar, 9 to the euro and 10 to the British pound.

The lira is down 19 per cent this year against the basket of major currencies, and is among the world’s worst performers after the selloff began in late July.

Fundamental analysts agree, based on the central bank maintaining its long-term refusal to raise interest, and to continue liquidity-based efforts to support the lira that Bluebay Asset Management senior analyst Timothy Ash refers to as “the smoke and mirror approach to central banking.”

The government-controlled Turkish news agency Anadolu Ajansi reported that the central bank was considering cutting interest rates based on the importance of the Black Sea find.

Energy industry sources expressed disappointment in the size of the Black Sea find, and said it could take seven to 10 years to start production on the Black Sea deposits and cost between $2 billion and $3 billion. An international partner would probably be required to extract the gas efficiently, the sources added.

The Borsa Istanbul 100 index fell as much as 1.8 per cent on the news, while shares in energy companies including refiner Tupras, Aksa Enerji and Aygaz dropped sharply after the announcement.



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