Turkish Lira Plunges to Another Record Low After Central Bank Slashes Rate

Source: Bloomberg.

The Turkish lira sinks to another record low level after the central bank downgraded interest rates for a fourth consecutive month, a move that risks undermining currency stability and increasing inflation. TRY USD down -3.87%

• The lira dropped over 5% against the dollar after the decision, taking its loss after an easing cycle started off in September to 44.5%.
• Under pressure from President Tayyip Erdogan, policymakers downgraded the one-week repo rate by 100 basis points to 14%, matching the median estimate in a Bloomberg survey.
• Turkey’s key policy rate is now seven percentage points lower than the consumer inflation. That’s encouraging demand for dollars on concern that Erdogan’s demand for easy monetary policy will continue to erode savings.
• The Turkish central bank implemented four direct interventions by selling dollars on the market in the last two weeks to curb currency depreciation.
• Turkey’s benchmark stock index increased by 1.8% after the decision. The index has surged to an all-time high as investors ventured into equities to hedge against inflation.