TheÂ Turkish lira is trading relatively flat against theÂ US dollar onÂ Tuesday. TheÂ lira crashed toÂ aÂ record low onÂ Monday after one ofÂ theÂ world’s premier credit ratings agencies slapped Turkey with aÂ credit downgrade andÂ geopolitical tensions between Turkey andÂ Greece escalate. After cratering toÂ anÂ all-time low this past spring, does this mean theÂ lira can suffer another record low this year?
OnÂ Monday, Moody’s Investor Services downgraded Turkey’s credit rating from “B1” toÂ “B2,” warning ofÂ aÂ deeper financial crisis. TheÂ agency listed theÂ country’s external vulnerabilities that could lead toÂ aÂ balance ofÂ payment calamity, adding that its fiscal tools are eroding.
The ratings group added that the central bank’s foreign exchange reserves compared to the gross domestic product are at their lowest levels in decades. The central bank has been doing everything to prop up the lira, including raiding its forex reserves, which presently stand at $44.8 billion, down from more than $80 billion at the start of 2020.
AsÂ aÂ result, Moody’s cut is bringing Turkey’s sovereign rating closer toÂ junk territory. Overall, Moody’s is maintaining aÂ negative economic outlook.
President Recep Tayyip Erdogan dismissed theÂ news, although he misdirected his attack onÂ Standard andÂ Poorâs. Erdogan stated inÂ aÂ speech:
S&P, get aÂ grip onÂ yourself. You cannot push Turkey around with economic sanctions. You did that before. Did you get aÂ result? No, you didn’t. You won’t do inÂ theÂ future either.
OnÂ theÂ data front, retail sales surged 9.5% inÂ July, down from theÂ 18% spike inÂ June. TheÂ higher retail sales forÂ theÂ third consecutive month suggested that domestic demand is recovering. TheÂ Turkish economy reported gains inÂ food andÂ beverages, electronics, household goods, automotive fuel, andÂ apparel.
InÂ July, industrial production advanced atÂ anÂ annualized rate ofÂ 4.4%, beating theÂ market forecast ofÂ 3%. This is also up from theÂ tepid 0.4% jump inÂ theÂ previous month. Automobile output also skyrocketed 44.3% year-over-year last month, up from theÂ 11.8% contraction inÂ July.
TheÂ USD/TRY currency pair rose 0.05% toÂ 7.4913, from anÂ opening ofÂ 7.4881, atÂ 19:23 GMT onÂ Tuesday. TheÂ EUR/TRY dropped 0.06% toÂ 8.8767, from anÂ opening ofÂ 8.8828.
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