Turkish President Recep Tayyip Erdogan attended a news conference in Budapest, Hungary on November 7, 2019.
Bernadette Szabo | Reuters
Turkey’s sliding currency hit a new low on Tuesday, trading in London late in the afternoon with a record 8.8 lira per dollar, amid investor resentment over the central bank’s insistence on interest rates and rising tensions between Turkey and France.
“The market is clearly not happy with the CBRT’s approach on the side of the rate,” W. Brad Bechel, Jefferies’ global head of foreign exchange, wrote in a note on Tuesday, referring to Turkey’s central bank.
The value of the lira has fallen by 20% year-on-year and has halved since the end of 2017. In early 2018, one dollar lira bought only 3.77 lira; Now analysts predict that the figure will hit 8.5 or even 9.
The latest slide comes after the central bank refused to raise interest rates last week, surprising investors, and instead decided to raise the liquidity lending rate to 14.75% at the end. Despite its double-digit pressure to raise its rates to combat inflation, it has announced its intention to focus on liquidity measures (unless) the outlook for inflation improves significantly. The benchmark interest rate for Turkey is currently 10.25%.
Analysts at Commerzbank wrote in a note on Tuesday that it would have been difficult for the (central bank) to more clearly accept that it was unwilling to take any steps to stabilize the Turkish lira in the face of inflationary pressures and political pressure.
Erdogan had previously defended his economic record, calling interest rates “the tools of his enemies” in September. During the summer he called the lira slide “temporary.”
The fight with Macron … and the boycott of France?
French President Emanuel Macron is the latest target of Ankara’s aggression, adding to the foreign confrontation that Turkish President Recep Tayyip Erdogan has intervened this year. Erdogan on Monday urged Turkey to boycott French goods after the country speculated on satirical cartoons of the Prophet Muhammad on government buildings in Paris in protest of the terrorist assassination of a French teacher who showed images to his class.
Erdogan accused Macron of Islamophobia and said he needed a “psychological investigation.” Macron, who defended the French move as an exercise in free speech, recalled the French ambassador in Ankara.
Other flashpoints for Turkey include its involvement in the Libyan and Syrian conflicts, Eastern Mediterranean tensions over drilling rights, and the recent battle between Armenia and Azerbaijan in Nagorno-Karabakh. The argument has been made against the Middle East, including the UAE, Saudi Arabia and Israel, as well as NATO countries Cyprus, Greece and France, because of Ankara’s intervention and its vocal support for political Islam.
In addition, its report test of the Russian S-0000 missile defense system, which it acquired against NATO’s consent, is likely to lead to the withdrawal of sanctions from Washington and Washington, which could pose another threat to the lira.
Turkey’s central bank ‘needs to wake up’
Erdogan’s unpredictability, as well as his grip on Turkey’s central bank, which has been seen as less independent in recent years, weighs on the currency.
Erdogan has defended the country’s monetary policy decisions, repeatedly calling interest rates “evil” and often refusing to allow the central bank to raise them, which most economists agree should be done to fight inflation, currently only 11% in Turkey. Is.
“The CBRT needs to raise its policy rate very quickly and at an additional rate, otherwise the lira will hit the floor,” Ashto wrote in an email note on Tuesday from Timothy Ash, a senior strategist at BlueB asset Management.
“The lira is weak because the CBRT clearly failed to do so last week and the base rate was raised. With the lira hitting 8..30 today, the question is: where is the floor? 50.50? ++?”
The currency was already steadily depreciating compared to the dollar before the coronavirus epidemic hit, but it is now under more pressure as foreign exchange reserves dwindle and the country’s tourism revenue declines. Unemployment in Turkey is over 14%.
The country’s government has “shattered the confidence it placed in the central bank with its decision last week,” Commercebank analysts wrote, adding that any loss-control measures would have to be taken to convince markets that monetary policy would be “stable”. In the long run. “
“We are likely to see many more USD-TRAI record levels before the necessary change in policy is finally made,” he wrote.
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