Baku, Azerbaijan, June 1
By Anvar Mammadov - Trend:
Depreciation of the Turkish lira will not have a strong impact on Azerbaijan, 2 percent of whose investment portfolio is placed in the lira, John Hardy, head of forex strategy of Saxo Bank told Trend June 1.
The expert said Turkey's economic problems may have some impact on the region, but Azerbaijan will be the least involved country in these problems.
"The chief pressure on Azerbaijan may come on a general unwillingness to invest in emerging markets in the region if political concerns mount or the financial situation in Turkey worsens further, though Azerbaijan is less directly involved in these, save for its trade relationships with important regional players like Russia and, of course Turkey. But if the global price of oil remains relatively elevated, there may be little widespread impact on the Azerbaijani economy, and a 2 percent exposure in Turkish lira is not large enough for widespread concern. There could be more significant fallout for the region if the Turkish situation worsens to the point of default, however, as this could more profoundly drag regional economies down and thus the demand for oil, if Azerbaijan can’t find alternative destinations," Hardy said.
Referring to the reasons for the collapse of the lira, the expert noted that this is due to the gradual strengthening of the dollar and geopolitical problems in the region.
"Global pressure on emerging markets has emerged in recent months on the strong US dollar and higher US interest rates (even if these have eased slightly recently). In addition, it is necessary to remember geopolitical concerns in Turkey after the US has brought back sanctions against Iran and tension remains high over operations in Syria by everyone in the region, including Israel, Russia, the US, Iran and Turkey," Hardy said.
The expert noted that the situation is aggravated by domestic political problems, which are now the main concern of Turkey.
"Political concerns, however, are the chief concern of Turkey, as elections are set to be held in June that will bring into force the new constitutional reforms that make the presidential post much more powerful. It is assumed that President Erdogan will remain president with these new expanded powers and he has promised interference in central bank policy and rate cuts as he views these as likely to slow inflation. This is simply wrong as it is the weak lira that is the chief contributor to inflation and cutting rates would likely make the problem worse," Hardy said.