Turkish executives warn of lira risks, urge policy changes

04/12/2016 08:21 AST

Top executives at Turkish conglomerates have called for changes in economic policy to mitigate risks from a plunging currency.

The “CEO Club” meeting took place in Istanbul as the lira dropped to a new record for the third consecutive day on Friday. Losses accelerated after President Recep Tayyip Erdogan reiterated a call for lower interest rates and urged Turks to convert any dollar savings into liras or gold. Those remarks sparked a sell-off that pushed the Turkish currency down as much as 2.6%, the most worldwide, to 3.5935 per dollar.

“Today is not the day to insist on the interest rate policy,” Borusan chief executive officer gah Ugur said before Erdogan’s comments, referring to government officials who have repeatedly pushed for lower interest rates. “If we manage the interest rate policy well, the lira may cool down a bit.”

Some of the executives, who represented seven of Turkey’s largest companies, said exchange rate volatility was making it more challenging to prepare budgets for the coming year. The lira’s plunge on the day sent it to a level already weaker than all but two of 43 economists’ forecasts for the first quarter of 2017, according to a Bloomberg survey.

“The biggest risk will be foreign exchange in 2017,” said Mehmet Tutuncu, CEO of Pladis, a conglomerate that owns stakes in Turkish and international brands including Godiva Chocolates, DeMet’s Candy, United Biscuits and Ulker.

Turkish non-financial companies have a net foreign exchange shortfall of $212.8bn, an amount equivalent to more than 25% of gross domestic product, according to central bank data published on Friday.

Speaking at an opening for a car dealership centre in Ankara, Erdogan said there was “no other solution but to lower interest rates.” Many investors have been arguing the opposite, saying Turkish rates need to be higher to compensate for risks, tame inflation and defend the currency.

“Low interest rates are very important for us and for our companies, but we expect the central bank will have to raise rates a little bit to stabilise the currency,” said Zafer Kurtul, CEO of Sabanci Holding, Turkey’s second-biggest group of companies. “We may expect higher funding costs and slightly negative impacts on balance sheets next year.”

Gulf Times