Lira sinks as Powell announces plans for faster tapering

Turkish Lira sank to another record low level following Fed Chair Powell declared intentions for faster pace of tightening by the U.S. Federal Reserve.

The lira fell as much as 4.7% to 13.46 per dollar at 8:30p.m. in Istanbul, after Fed Chair Powell said it appeared appropriate to consider finishing the central bank’s tapering of asset purchases a few months earlier than previously expected.

The markets were already uneasy as President Erdoğan is due to appear on state broadcaster TRT tonight at 22:00 to evaluate Turkey’s strong 3Q21 GDP performance and repeat his call for lower interest rates in Turkey.  TL’s loss of value has been fueling inflation which seems designated to reach 23% by 2021-yearend and to 35% by 2022.

In contrast to many central banks Turkey has slashed 4 percentage points off borrowing rates since September and reduced it to 15% as of November.

As Bloomberg notes the Turkish lira has weakened more than 27% since the central bank started easing policy, by far the biggest depreciation in emerging markets. Consumer prices rose an annual 19.9% in October, almost four times the official target.