Turkish Lira hits new low with little respite in sight

Turkish Lira hits new low with little respite in sight

The Turkish lira fell to a new all-time low against the dollar on Monday and analysts saw little respite given what have been called expectations of an ‘irrational’ interest rate cut. late this week.
The worst performing emerging market this year, the Turkish currency hit a low of 9.3350 against the dollar before cutting a few losses. It was 9:31 am to 6:22 pm GMT.

It has lost 20% this year, and half of the depreciation has occurred since the start of last month, when the central bank started giving dovish signals despite inflation hitting nearly 20%.

President Recep Tayyip Erdogan has long called for monetary easing and his influence, including the swift replacement of top central bank officials, has reportedly eroded political credibility in recent years.

After last month’s 100-point rate cut caused the pound to fall, economists polled by Reuters news agency were divided on whether the central bank would ease an additional 50 or 100 basis points when of a political meeting on Thursday.

Some economists declined to respond to the poll given how unpredictable the central bank has become, especially after Erdogan sacked three of its Monetary Policy Committee (MPC) members last week, including two seen as opposed to rate cuts.

“At the end of the day, decisions on… monetary policy are no longer made by the central bank itself but are taken at the presidential palace,” analysts at Commerzbank said.

Societe Generale predicted a 100-point drop followed by a central bank pause as the lira slips to 9.8 against the dollar by the end of the year.

After his latest central bank reshuffle, Erdogan “effectively eliminated all opposition to his unorthodox view that high interest rates cause high inflation,” SocGen analysts wrote in a client note.

Despite the “irrationality” of further rate cuts today, “there is no point in attributing traditional economic arguments to [central bank’s] probable course of action, ”they wrote.


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