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Turkish lira slips four pct against US dollar as inflation seen rising even higher

The lira slid as much as 4 percent against the dollar on Tuesday as Turkey girded for inflation to rise further after touching a 19-year peak.

Finance Minister Nureddin Nebati said he expected a return to stability after a volatile currency crash in recent months.

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The lira, however, weakened as far as 13.5 to the dollar from a close of 12.96 on Monday, and stood at 13.295 by 0946 GMT, as economists forecast consumer prices would continue to rise after data on Monday showed Turkey’s annual inflation rate surged to 36.1 percent last month.

The lira hit a record low 18.4 two weeks ago before rebounding following the government’s steps to support the currency.

Last year, the lira weakened 44 percent, making it by far the worst performer in emerging markets and marking its worst year since President Tayyip Erdogan came to power nearly two decades ago.

His “new economic program” of sharp interest rate cuts and an emphasis on exports and credit set off the currency crisis, Turkey’s second in four years.

“We expect a stable exchange rate trend to be established over time,” Treasury and Finance Minister Nebati, whom Erdogan appointed last month, told state-owned Anadolu agency on Tuesday.

The central bank has cut its policy rate by 500 basis points to 14 percent since September, under pressure from Erdogan who overhauled the bank’s leadership last year.

Many economists call the monetary easing reckless given the surge in consumer prices to 36.08% year-on-year in December, which was much higher than forecast and driven by the lira weakness and transport and food prices.

Inflation should continue rising in coming months in part due to a series of administered price rises including minimum wage, utilities, road tolls and alcohol and tobacco taxes.

“The December inflation spike was largely driven by the FX passthrough and imported energy costs,” said Hakan Kara, a Bilkent University professor and former chief economist at Turkey’s central bank.

“The authorities may implement some price controls and deploy additional tools to prop up FX depreciation. But it is not clear how these measures will alleviate the demand channel,” he said, predicting inflation may exceed 40 percent by March.

Kara said overall January inflation should rise by 5 percentage points due to the direct and indirect contributions from the administered price hikes.

Speaking after a cabinet meeting on Monday, Erdogan said he was saddened by the inflation data and that his government was determined to lower it to single digits, blaming the climb on global commodity prices and a weaker lira.

To curb the lira weakness, Erdogan unveiled a scheme two weeks ago in which the state protects converted local deposits from losses versus hard currencies.

Deposits in the forex-protected scheme had reached 84 billion lira ($6.4 billion), Nebati was reported as telling Anadolu on Tuesday.

“By developing instruments like the new fx-protected deposit accounts and increasing the lira’s attractiveness, we will lower inflation,” he said, adding that once stability is achieved, Ankara would boost production and exports.

Nebati said work would be conducted on drawing gold kept at home into the financial system, while the state’s contribution to the private pensions’ system will be raise to 30 percent from 25 percent.

Corporate tax will be made more competitive and value-added tax will be simplified among various planned measures, he added.

Read more: Turkey’s lira mounts big comeback after Erdogan unveils anti-dollarization measures

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Russia allows gas flows to Gazprom Marketing & Trading for 90 days

Russia gave permission for natural gas supplies to Gazprom Marketing & Trading Singapore Ltd, part of Gazprom Germania, from Yamal LNG project for 90 days, a government decree showed on Wednesday.
The move comes less than two weeks after the Kremlin said that Russian sanctions imposed on state gas company Gazprom’s former German unit and other entities meant they could not receive gas supplies from Russia.
Germany, Russia’s top client in Europe, in early April transferred Gazprom Germania, an energy trading, storage and transmission business ditched by Russia’s Gazprom, to its energy regulator to ensure energy security.
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Energy ties between Russia and Europe plunged into crisis after Moscow started what it calls “a special military operation” in Ukraine on February 24 and the West responded with sweeping sanctions that put Russia on the brink of recession and a default on external public debt.
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Dieselgate: Volkswagen settles UK emissions class action for £193 million

Volkswagen settled its UK class action lawsuit for £193 million ($242 million) with more than 90,000 drivers impacted by the emissions scandal.

No admissions of liability have been made by Volkswagen and the terms and conditions are confidential, according to a statement from the auto giant.

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A separate contribution toward the claimants’ legal costs and other fees will be made by the company.

Volkswagen alongside law firms Slater & Gordon, Leigh Day and PGMBM, who were representing the claimants in the case, said Wednesday that both sides had come to the out of court settlement and as many as 91,000 claims had been resolved.

The automaker has faced numerous lawsuits in what’s been dubbed the ‘dieselgate litigation’ after the use of the software designed to lower emissions when being tested was exposed as fraudulent by a US investigation in 2015.

That led to a recall throughout Europe that cost the company billions of euros and massive fines from European regulators.

“The settlement is another important milestone as the Volkswagen Group continues to move beyond the deeply regrettable events leading up to September 2015,” Philip Haarmann, chief legal officer of Volkswagen, said.

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Turkey’s lira falls beyond 16.3 vs dollar as FX need grows

Turkey’s lira slid beyond 16.35 against the dollar on Wednesday to its weakest level since the depths of a December crisis, as analysts questioned authorities’ ability to continue steadying it without new sources of foreign currency.

The lira has weakened 9 percent this month and 19 percent this year, despite months of costly interventions in which the central bank has sold dollars to soften the blow and the state has backed an FX-protected deposit scheme.

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The currency dipped as far as 16.3515 and stood at 16.3300 at 1257 GMT, after a 1 percent fall against the greenback.

On Dec. 20, the emerging market currency hit a record low of 18.4 after a series of unorthodox interest rate cuts which pushed it down 44 percent on the year as a whole. In response, inflation has since leapt to 70 percent in April.

The lira held mostly steady early this year due to the government’s scheme, known as KKM, that protects some depositors against lira depreciation. The central bank has also sought to meet the market’s foreign-currency needs since the December crisis.

But those efforts to keep the currency steady have taken their toll on the Central Bank of the Republic of Turkey’s (CBRT) already depleted reserves, according to bankers.

“We estimate that the CBRT’s FX sales exceeded $30 billion in the January-April period,” said economist Haluk Burumcekci, adding that balance sheet data showed sales were more intense in May.

Adjusted for swaps, the bank’s net international reserves fell by another $7.7 billion after the first 20 days of May, he said.

Data last Friday showed the central bank’s net international reserves dropped some $3.5 billion to $11.53 billion in the week to May 13. Bankers calculate that they fell to $10 billion or less in the following week.

Economists say rate hikes could help relieve both the lira and reserves. But President Tayyip Erdogan’s opposition to policy tightening has left few expecting a turnaround any time soon, including when the bank meets on Thursday.

Robin Brooks, chief international economist at the Institute of International Finance, said “intense depreciation pressures” are rising. “We think risk of a severe overshoot – much like in 2021 – is high, given rising global recession risk and the big credit expansion in Turkey,” he said on Twitter.

The war in Ukraine began harming the lira in March as Western sanctions on Russia sent energy prices soaring, pushing up Turkey’s already hefty import bill and fueling inflation.

On Tuesday, the cost of insuring Turkey’s debt against default shot to its highest since the 2008 global financial crisis. IHS Markit data showed 5-year credit default swaps (CDS) had risen to 730 basis points from 704 points.

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