Uncertainties in U.S. economic policies add to the strain on Turkish economy -- experts

ISTANBUL, April 12 (Xinhua) -- Uncertainties in U.S. monetary policy and high inflation in the United States are jointly intensifying pressure on Türkiye, whose economic prospects are already downbeat, said Murat Tufan, an analyst with Turkish broadcaster Ekoturk.

The U.S. Labor Department reported on Wednesday that consumer inflation in the United States accelerated to 3.5 percent in March from a year ago, up from 3.2 percent in February, signaling ongoing inflationary pressure.

Federal Reserve Chair Jerome Powell said on April 3 that they do not think it will be appropriate to lower the policy rate until there is greater confidence that inflation is steadily moving down towards 2 percent.

Türkiye's inflation soared to 68.50 percent in March while the Turkish lira has depreciated by 8.57 percent against the dollar in 2024 alone.

"Given Türkiye's 70 percent dependency on imports, the unfortunate reality is that the foreign trade deficit is reaching record levels due to the depreciation of the Turkish lira against the dollar," he said.

"Amidst this delicate scenario, uncertainties in the U.S. economy, are exacerbating the strain on the country," Tufan said, particularly highlighting the Fed's "wrong" policies.

Although the market expects the Fed to cut interest rate cuts, the analyst said that prevailing inflation indicators in the United States and the increase in petrol prices do not warrant such cuts.

"This uncertainty is leading to a ripple effect in the markets: central banks dependent on the Fed are making incorrect decisions, and those intending to cut interest rates may end up raising them prematurely," said Tufan.

"Firstly, it's imperative to invigorate the domestic economy, prioritizing national interests," Tufan said, believing what needs to be done is crystal clear. "In the long term, nations like Türkiye must discern what to produce autonomously, aiming to diminish reliance on the dollar and strategically targeting key sectors through appropriate channels."

In Istanbul's Grand Bazaar, the cornerstone of Türkiye's free foreign exchange and gold market, serving as the primary influencer in determining prices, dealers eagerly awaited the announcement of the U.S. non-farm payroll data on April 5.

On Thursday, one gram of gold, the most favored investment instrument among Turks, stood at 2,429 Turkish liras (about 75.25 U.S. dollars). It was 2,350 liras (about 71.70 dollars) on the morning of April 5.

Yildirimturk, who also runs a website that streams live prices from the free foreign exchange and gold market, told Xinhua that the dependency on American data in this specific Grand Bazaar represents just one facet of a broader panorama.

"Federal Reserve's decisions hold significant sway in Türkiye, much like they do across the globe," he said. "The interest rate hikes by the Fed are meticulously observed and exert a notable influence on the local markets."

Yildirimturk emphasized the urgency of promptly reducing Türkiye's dependency on the U.S. economy, citing the risks arising from instabilities and uncertainties in American policies.

"Powell says: let's believe that we will reach the two percent target, then we will think about an interest rate cut," Yildirimturk spoke about the unclear statements of the Fed.

"It appears that the U.S. aims to reduce its inflation, but not to an excessive extent," he said. "That explains the prolonged delay in implementing an interest rate cut."