Turkish Lira Plunges To Record Low as Policy Rates Are ‘Not Tight Enough’ to Curb Inflation

The Turkish lira plunged to a record low against its U.S. counterpart as key policy rates were kept unchanged even as inflation continued to climb.

• The lira dropped as much as 1.1% to 8.5981 per dollar, set to mark its third daily decline for the week.
• Traders said the losses were compounded as local accounts stocked on the greenback for foreign-currency debt repayments.
• Central bank data shows that Turkish firms are set to pay $6.9 billion of foreign-currency loans in June.
• Turkey’s central bank maintained its benchmark interest rate at 19% during a second meeting this month, saying inflation already peaked.
• Inflation accelerated for the seventh straight month in April at 17.14%, on the back of higher energy costs.
• With the current figures, Turkey’s real policy rate stands at less than 2%. This could expose the currency to shifts in investor sentiment.
• Coex Partners Strategist Henrik Gullberg said the downtrend is a reflection of monetary policy “not looking tight enough to contain inflation expectations.”