Cheap Oil Is Now-You-See-It Now-You-Don’t for Turks on Lira DropZahra Hankir and Constantine Courcoulas
For Turks, it’s almost as if oil’s collapse never happened.
The 43 percent recovery in crude prices in dollars since Jan. 13 has been magnified by the world’s biggest major-currency depreciation to a 68 percent surge in liras. At 178 liras a barrel, Brent is almost as expensive as the average in the past year.
“The problem is that the lira depreciation has been so steep that the downtrend in oil prices has been offset to a great extent,” Philippe Dauba-Pantanacce, a senior economist at Standard Chartered Plc in London, said by e-mail Wednesday. The benefit of lower oil prices “is vastly overplayed,” he said.
While the reduced cost of imported fuel helped damp inflation and narrow the current-account deficit, the effect is wearing off. Consumer-price growth accelerated for a third month in April, driving the biggest jump in government bond yields among emerging markets in 2015.
The yield on two-year benchmark notes rose 13 basis points to a 13-month high of 10.31 percent a day ago before falling 10 basis points on Thursday. The rate tumbled to a 19-month low in January as oil slid toward its lowest levels since 2009.
The lira appreciated 0.3 percent to 2.6838 per dollar at 6:39 p.m. in Istanbul on Thursday, trimming this year’s decline to 13 percent.
Commerzbank AG cut its recommendation on Turkish bonds to underweight in a report dated May 5, citing in part deteriorating “local currency positions” before the country’s elections next month. It also noted negative political “vibes” around central-bank policy and “surprise upticks” in oil prices.
Governor Erdem Basci, under government pressure to boost a sluggish economy in the run-up to the June 7 vote, kept the key rate unchanged at 7.5 percent for the past two months. That followed two cuts totaling 75 basis points in the central bank’s first two meetings this year.
While Basci raised the year-end inflation forecast to 6.8 percent from 5.5 percent, citing the lira’s weakness and higher-than-expected oil prices, he said current and expected inflation didn’t warrant any additional policy tightening.
Inflation, which neared a 24-month low in January, accelerated more than economists estimated to 7.9 percent in April. Core inflation, which excludes food and fuel, slowed to 7 percent, also higher than forecasts, from 7.1 percent a month earlier.
Brent crude jumped 21 percent in April, the biggest monthly gain since May 2009, amid signs the supply glut was easing. Turkey’s two-year yields have climbed 215 basis points this year, more than three times the next biggest increase for Mexican notes. That compares with a 508 basis-point drop for similar-maturity Russian securities.
The jump in Turkey’s rate may provide room for “catch-up,” given that the global risk sentiment supports emerging-market assets, according to Henrik Gullberg, a London-based strategist at Deutsche Bank AG. “Compared with other high yielders, the lira has not really participated in the rally so far,” he said by e-mail on Tuesday.
While Turkey’s current-account deficit widened to $3.2 billion in February, that’s up from the lowest level since 2012 a month earlier and brought its 12 month total to $42.8 billion, compared with a $62.2 billion gap in the same period a year earlier.
Even as lower energy costs have helped reduce the current-account shortfall, the favorable effects will “dissipate” this year, Selim Cakir, chief economist at Turk Ekonomi Bankasi AS in Istanbul, said by e-mail on Tuesday. Inflation has disappointed, he said.
“Turkey’s favorable cyclical disinflation story clearly turned sour,” Cakir said. “The lira depreciation shaved off most of the benefit from the decline in Brent.”
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