Turkish Economy / Lira - Brief Update January 2022

Date: 24th January 2022 Category: Latest News
Turkish Economy / Lira - Brief Update January 2022

The general consensus is that most, if not all packers, are purchasing raw material hand to mouth.

Turmoil in the Turkish economy has created uncertainty and lack of credibility in their currency.

When inflation topped 21% in November, President Erdogan pressed Turkeys central bank to cut interest rates by five percentage points to 14%. In response, Turks switched more deposits out of the Lira into Dollars and the Euro, fueling a currency crisis. The Lira fell from 8TL v $1 to 18TL v $1.

Erdogan’s solution, was to create a scheme that promises to compensate them for any losses if they tie up their money in Lira deposits for three months. But even if that succeeds in stabilising the Lira, it will not end Turkey’s problems, inflationary momentum, cheap credit and rises in the minimum wage will continue to lift Turkish prices. Inflation hit 36% recently, and if Erdogan’s currency scheme fails, the consequences could still be worse. Turkey’s taxpayers will be on the hook for bailing out its depositors.

Raw material itself is limited on the open market, with farmers and traders alike reluctant to sell.

Any material sold forward is speculative, therefore adding a premium to compensate for any further potential interest rate and or inflation rate rises.

The Lira is thought to sustain its strength throughout the coming months in-line with Erdogan’s scheme, by which time the central banks will start paying out the difference in deposits.

This is something the TMO are conscious of, are will more than likely announce a sales price in-line with this.

The TMO themselves are rumoured to hold somewhere between 10,000mt to 15,000mt of old crop and 50,000mt to 60,000mt of new crop.