Turkish minister shrugs off lira volatility, sees economic contraction possible

The competitiveness of Turkey's lira is more important than the exchange rate level, Finance Minister Berat Albayrak said on Wednesday, shrugging off a slide in the currency to record lows last week. In an interview with broadcaster CNN Turk, Albayrak also said Turkey's gross domestic product this year will show between 1% growth and 2% contraction, after the coronavirus pandemic hit the economy.

The competitiveness of Turkey's lira is more important than the exchange rate level, Finance Minister Berat Albayrak said on Wednesday, shrugging off a slide in the currency to record lows last week.

In an interview with broadcaster CNN Turk, Albayrak also said Turkey's gross domestic product this year will show between 1% growth and 2% contraction after the coronavirus pandemic hit the economy. Analysts expect the economy to contract. "The exchange rate goes down, it goes up. What is important is that Turkey manages all this volatility in a controlled way," he said. "What is important is not the exchange rate, but whether it is competitive".

The lira hit a record low of 7.3650 against the dollar last week, a slide of 19% from its level at end-2019, making it among the worst performers in emerging markets. The central bank has since halted cheaper funding which had allowed primary dealers to borrow well below its policy rate in an effort to squeeze credit via backdoor channels and stabilize the currency.

Albayrak, who is President Tayyip Erdogan's son-in-law, also said Turkey will miss its budget deficit target this year and the deficit will likely be around 5-6% of gross domestic product. Economists expect Turkey's economy to shrink this year because of the coronavirus pandemic, while further lira depreciation could drive up inflation and the current account deficit and worsen the contraction.

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