On Friday, the Turkish Lira fell to its third all-time low in many days. It was hovering near the critical threshold of 10 to the dollar. As a result there were fears that the central bank may cut rates again next week despite soaring inflation.
In early trade, the Turkish lira TRYTOM=D3 fell as low as 9.9855 versus the US dollar. Which was down from a closing of 9.92. Even it had recovered to its closing level by 0808 GMT. Although it was still down 25% for the year.
The currency continues to be the poorest performer in developing markets this year. It has lost two-thirds of its value in five years. Which has contributed in eroding Turks’ wages. Because the annual inflation hovers above 20%.
Higher than expected U.S. inflation statistics on Wednesday caused the latest lira decline. These statistics lifted the dollar owing to the possibility of early Federal Reserve policy tightening. As a result rising US interest rates tend to draw money out of emerging markets with heavy foreign debt, such as Turkey.
Concerns over monetary policy credibility has pushed the lira down. According to investors, as President Tayyip Erdogan pushes for lower interest rates to support growth lira will stay down.
Since September, the central bank (CBT) has dropped its policy rate by 300 basis points. Its claiming that inflationary pressure is only transitory. However according to a Reuters poll released on Thursday, the bank is expected to drop rates by 100 basis points to 15% next week.
Governor Sahap Kavcioglu has stated that reducing the current account deficit is critical. It will help in maintaining price stability and strengthening the lira. Also he expects the balance of payments (BoP) to improve in the second half of 2021.
Market participants predict annual consumer price inflation to reach 19.31 percent by the end of the year, up from 17.63 percent a month ago. This was according to a central bank survey released on Friday.
This year’s economic growth is expected to be 9.2%. Separate statistics released on Friday showed that industrial production increased 8.9% year over year in September. It is falling short of the 10% prediction in a Reuters poll.