Dollar/TL pair is about to close trading in Istanbul interbank market, at 29.99, a smidgeon lower than 30 handle it tested intra-day.
It marks the first time that the lira has broken 30 against the dollar, which was up 0.17% against the Turkish currency from the previous day’s session.
The beleaguered lira has fallen some 37% against the U.S. benchmark over the past year, as monetary policymakers try to combat double-digit inflation by steadily raising interest rates.
The more conventional approach follows several years of unorthodox policy during which Ankara refused to tighten rates despite ballooning inflation, while Turkish President Recep Tayyip Erdogan routinely called interest rate rises “the mother of all evil.”
Inflation in the country of roughly 84 million rose to 64.8% on an annual basis in December, up from 62% in November. It’s still an improvement on the prior year, after Turkish inflation hit a peak of 85.5% in October 2022.
The lira’s weakening comes as Turkey’s top finance officials gather at J.P. Morgan’s Wall Street headquarters in New York for investor presentations focused on the country’s monetary policy, banking, assets, and financial markets.
The Turkish lira has lost more than 80% of its value against the dollar over the last five years, increasing import and foreign debt costs and dramatically weakening the purchasing power of ordinary Turkish people.
A new finance team was appointed in June last year, and Turkey’s central bank embarked on a sharp pivot, pulling rates higher under Erkan’s supervision. The country’s benchmark interest rate has since been lifted from 8.5% to 42.5%.
Wall Street bank JPMorgan revised its target for the lira by year-end to about 36 to the dollar from 34 previously, saying it maintained a “bullish view” on the currency.
USDTRY breached psychological 30 barrier and hit new record high on Thursday, extending gains between two full figures (29 and 30) in less than a month.
Steady and slow-paced ascend, interrupted by minor corrections, suggest that bigger gains are possible.
Once the break of 30 pivot is verified, bulls will shift focus towards next targets at 30.0575 (Fibo projection) and 30.10 (round figure).
Overbought technical studies so far did not cause any stronger impact on bulls, with fundamentals likely to play a key role in the near future.
Change of expectations for Fed’s monetary policy may increase pressure on dollar, while lira could appreciate if financial conditions in Turkey start to improve and foreign investments start to return, which could lead to stronger correction, commented FXStreet.com.
Former chief of research at Central Bank, Prof Hakan Kara reported in his X feed that Central Bank sold $2.7 bn in January to manage the exchange rate.
Turkey is currently on an unofficial “crawling peg” currency regime, wherein Central Bank controls the daily dollar/TL rate. It’s stated policy is real appreciation of Tl, which means the rate of monthly depreciation ought to lag inflation forecasts.
Thus it is not surprising to see dollar/TL break new highs each day from now on. The big question is whether the deprecation is managed by Central Bank or driven by market forces. The latter cause would create trouble for balance of payments, because it would mean either there is large retail demand for FX, or current account deficits are rising without a concomitant increase in external financing.
Probably, Central Bank is responding to complaints from the business community that a dear currency is reducing exports. It might also be blowing off some steam from the exchange rate in anticipation of a very high January inflation print to be announced on 3 Feb. Either way, the depreciation is controlled, with no signs of retailers running on TL
Commentary by PA Turkey staff, various international press sources
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