Turkish Lira Collapses to All-Time Highs, No Obstacles on Path to 9.00 by Investing.com

Investing.com – Heading into its worst month since August 2018, increasing speculation that the central bank will raise interest rates again.

Since early October, the Turkish lira has lost around 7% of its value against the US dollar, reminiscent of the collapse of the Turkish lira two years ago, and has forced the central bank to increase its lending spending by 625 basis points.

And what is like yesterday, Turkey is exposed, so to speak, to a number of geopolitical risks and concerns over the lack of monetary policy independence, which will help weaken the Turkish lira. Investors say the central bank must intervene even before the next meeting scheduled for November 19.

It won’t be the first time, so the central bank raised the interest rate in May 2018, an emergency hike of 300 points, to halt successive losses of the Turkish lira, and at its meeting in January 2014 , a decision was taken to raise the interest rate by 600 points.

“There is no reason to prevent the Turkish lira from moving and breaking above the 9.00 lira per dollar level in the coming weeks,” said Tatha Goss of Commerzbank.

The Turkish lira weakened 1.6% to $ 8.33 on Friday, recording the largest losses among emerging market currencies.

Turkey’s central bank has blocked investor calls to raise the interest rate and kept the rate at the same level.

Turkey is on the brink of a sea of ​​crises, the first of which is the diplomatic dispute between Turkey, Greece and Cyprus over exploration rights in the eastern Mediterranean region. This conflict has deepened the rift between Ankara and the Western allies, and over the past week there has been a determined blow. On Wednesday, the central bank raised its year-end inflation forecast to 12.1%, from its previous forecast of 8.9%.

During the current crisis, the central bank left the door open to the possibility of appropriate action.

The governor of the central bank said Turkey would take all necessary measures, including raising interest rates, and added that the Turkish lira was degraded.

However, he added that the central bank would not target the lira’s exchange rate, and warned that the weakness of the Turkish lira presented a risk to price stability, and added that policymakers would keep their monetary policy. tight until inflation improves.

However, this did not convince investors, who continued to conduct negative currency speculation.

“We believe the emergency rate hike will come at any time,” says Wayne Thien of Brown Brother Harriman.

But what would happen if the central bank increased the interest rate?

This does not guarantee the losses of the Turkish lira, Bloomberg says.

The Turkish lira rose sharply in the months following the surprise increase in September 2018, but ended the year down more than 30%, the second losing currency in emerging markets. After an emergency interest rate hike in 2014, the Turkish lira ended the year down 8%.

At the heart of the problem is the lack of investor confidence in the Turkish president’s monetary policy interventions. Erdogan promotes growth and job creation and adheres to unconventional strategies.

For its part, the central bank has gained a reputation for manipulating liquidity by increasing borrowing costs, but it keeps the interest rate stable.

“The current interest rate is targeting a temporary tightening in an unconvincing way,” says Timothy Ashe of Blue Bay. “In fact, individuals don’t believe the central bank is focused on inflation, and they see it as focusing on growth and jobs, and surveys of growing popular support for the ruling party.”

Source: Bloomberg