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Turkish Lira Continues Falling as Erdogan Remains Committed to Interest Rate Cuts

December 20, 2021 by Forex Winner Leave a Comment

Turkish Lira Continues Falling as Erdogan Remains Committed to Interest Rate Cuts

Source: Financial Times

The Turkish currency continued to plunge after President Recep Tayyip Erdogan ignored warnings from businesses about the potential harm of recent interest rate cuts. TRY USD down -5.79%

  • The currency, which has reduced 50% of its value against the dollar since the Turkish President ordered the central bank to start reducing its borrowing costs in September, dropped to a record low of 17.5 against the dollar after markets opened on Monday.
  • The lira’s over 6% fall was much worse than the 0.2% slid for MSCI’s broad emerging market currencies index.
  • Meanwhile, the cost of protecting against a potential default on Turkish debt has risen sharply due to the growing concern about the impact of the crashing Lira on the wider financial system.
  • The spread on the five-year credit default swap has increased to 575 basis points, from nearly 300 bp at the beginning of the year.
  • Erdogan has pushed the Turkish economy into a currency crisis by pushing for four interest rate cuts in the last four months despite surging inflation. 

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