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Dutch bank sees no sharp sell-off in Turkish lira in near future

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Dutch Bank ABN Amro has said there will be no sharp sell-off in the Turkish lira in the near future, according to the bank’s foreign exchange watch report published on Thursday.

The lira was in free fall this summer and plunged to as low as 7.23 against the US dollar on Aug. 13. As of Friday it had firmed to 5.35 to the dollar.

The report indicated that the lira’s recovery was dependent on the central bank’s 625 basis point interest rate hike on Sept. 13, more realistic assumptions in the New Economic Program unveiled by the Finance Minister Berat Albayrak, Turkey’s recent efforts to improve ties with the West and President Recep Tayyip Erdoğan’s performance to shed light on the killing of Saudi journalist Jamal Khashoggi in İstanbul.

“An economic recession and policy uncertainty are largely priced in. Therefore investors will unlikely be upset by any new negative news on these issues,” the report said.

The bank also foresaw that the US dollar would be weaker in 2019.

Still, the report argued that the value of the lira might be lowered in the short term because of incoherent political measures such as Albayrak’s “all-out war on inflation,” which was deemed inadequate for curbing inflation.

The report stressed that the central bank’s independence was still an “uncertain” matter.

Finally the local elections scheduled for next March would cause extra spending from the government to make up the economic outlook, which would lead the lira to lose value.

Turkey has been experiencing a currency crisis, with its national currency losing almost 40 percent of its value against the US dollar since the beginning of this year.

The crisis has triggered high inflation and interest rate hikes.

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