The beleaguered Turkish lira was crushed on Monday after Standard & Poor's warned it may downgrade its debt rating on Turkey.
The beleaguered Turkish lira was crushed on Monday after Standard & Poor’s warned it may downgrade its B+ debt rating on Turkey.
S&P cited the central bank’s cutting of interest rates while inflation has been rising for the negative outlook. “In our view, the current monetary easing and significant Turkish lira depreciation will further weigh on inflation, which could peak at about 25%-30% year-on-year in early 2022. Meanwhile, we project it will also lead to net general government debt increasing by an additional 8% of GDP in 2021, compared with our previous expectation,” the agency said.
The Turkish BIST 100 XU100, +2.79% stock market index rose 2.7%. Over 2021, the U.S.-listed iShares MSCI Turkey ETF TUR, +1.07% has dropped 25%. Strategists at UBS don’t expect the equity rally to be derailed by inflation fears. They expect global central banks to be adding liquidity through 2022, note markets have already priced in faster tightening by the Fed, and expect inflation pressures to decline next year. “We believe markets can continue take a higher inflation reading in their stride, though additional volatility remains a risk,” they said.
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