Lira Breaches Psychological Barrier in Weekly Plunge on Erdogan’s Rate Cuts

Source: CNBC

Turkey’s lira traded beyond 12.9 to the dollar on Tuesday, above 11, which is considered the “psychological” barrier to the greenback. USDTRY is up +14.04%.

• Ultra-low trading of the lira to the dollar was triggered by continued interest rate cuts by Turkish President Recep Tayyip Erdogan amid high inflation, which is now almost 20%.
• Erdogan has labeled the rate cuts “economic war of independence,” in total defiance of investor and analysts’ calls for a change of course. 
• Investors now fear over the autonomy of Turkey’s central bank, with Erdogan seen to influence key policies after firing three officials in two years due to policy disagreement. 
• Bluebay Asset Management strategist Tim Ash calls the current lira trading against the dollar insane, reflecting the unorthodox monetary policy by Erdogan. 
• Lira has now lost almost 40% of value in 2021 and is down up to 20% from last week when the central bank cut rates by 100 basis points. The lira traded at about 5.6 against the dollar in 2019.