Sunday 20, May 2018 by William Mullally

Turkish lira reaches new lows

In the context of rising Treasury yields and a stronger US dollar, most emerging market currencies have lost ground in Q2 2018, especially those of countries like Turkey, with external vulnerability. However, domestic concerns have been weighing on the lira as well. 

The Turkish lira (TRY) has repeatedly reached new lows in the recent weeks, having accumulated a loss of more than 15 per cent against the US dollar year-to-date. In the context of rising Treasury yields and a stronger US dollar, most emerging market currencies have lost ground in Q2 2018, especially those of countries like Turkey, with external vulnerability. However, domestic concerns have been weighing on the lira as well. 

While the Turkish economy is already overheating, a new fiscal stimulus was announced at the end of April, ahead of the early presidential and parliamentary elections on 24 June. Moreover, yearly inflation has reached 10.85 per cent in April, more than twice the Central Bank of the Republic of Turkey’s (CBRT) target. Last month, the CBRT hiked its rate more than expected, which temporarily helped to support the lira. This did not last and concerns are growing about the CBRT’s ability to curb inflation, especially as this week President Erdogan reiterated his call for lower interest rates and even announced that he would exert more influence on monetary policy if reelected in June, according to Annabelle Rey, Economist, Julius Baer.

“While a stronger US dollar has been generally putting pressure on emerging market currencies recently, the Turkish lira has been suffering even more on the back of growing concerns over an overheating economy, too high inflation and the independence of its central bank,”said Rey.

 

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