2023-06-23 20:50:12
Despite the Turkish Central Bank’s announcement of raising interest rates to 15 percent, following years of interest-cutting policy pursued and defended by President Recep Tayyip Erdogan, the decision negatively affected the exchange rate of the lira.
The lira continued to decline to record levels, indicating dissatisfaction with the interest rate hike, which was expected to be higher than that.
The lira recorded its lowest level at 25.59, and the rate of decline was approximately 27 percent once morest the US currency this year.
Why back off?
Cemal Demirtas, deputy director general for research at Atta Yatrim, explains what is happening, saying:
Market expectations were that the interest rate would rise to 20 percent, and the Central Bank made a limited increase and raised the policy rate to 15 percent, with the beginning of the monetary tightening process, and it was confirmed that the effectiveness of monetary policy will increase. Recent indications indicate that the underlying trend of inflation is on the rise, and we believe that interest rate hikes may continue in the coming period. Developments in the global economy and the Turkish economy will also be decisive in the rate of interest rate increase. In the coming period, in addition to monetary policies, fiscal policies and the path of the new economy will be decisive in determining the direction of the markets, and it is likely that the value of the lira will continue to decline in the coming period.
“Disappointment”
Economist Mukhles Al-Nazer agrees with him, saying that “the interest rate decision announced by the Central Bank of Turkey did not live up to analysts’ expectations and created disappointment.”
Al-Nazer expects that the task of Hafiza Jaya Erkan, the head of the Central Bank of Turkey, who took office this month, will become difficult to rebuild confidence, especially since the reaction of the markets was very harsh.
It follows from the foregoing that foreign investors will remain cautious in the coming period, and the exchange rate reaching the fair value limits very quickly indicates upcoming significant inflationary pressures, according to the economist.
Gradual transformation
Securities research expert Cihun Yavas also believes that the interest rate hike did not meet market expectations of 20 percent.
Yavas describes what is happening as “the initiation of a transition process is adopted gradually, instead of a direct transition in raising interest rates, and it will simplify and improve the current micro- and macro-prudential framework, on the other hand, we believe that the simplification will be gradual.”
This is accompanied by expectations of an increase in fluctuations in the prices of foreign currencies and gold, as he sees it, explaining: “We consider that there is a greater possibility of buying due to the central bank’s reserve structure in the event of rebounds in the prices of foreign currencies and gold due to the intensity of interest rate increases, and we believe that the fair value in the currency This should be taken for granted by the markets so that we can assess whether the current levels represent an opportunity for forex and gold.”
change in track
The Turkish Central Bank raised the main interest rate, Thursday, by 650 basis points to 15 percent, and said in its first meeting under its new president, Hafiza Jaya Arkan, who was appointed by Erdogan following his victory in the elections, that he would go further.
The move represented a change of course following years of monetary easing in which the rate of one-week repo agreements fell to 8.5% from 19% in 2021, in an unconventional policy pursued despite high inflation.
The median forecast in a Archyde.com poll was for a rate hike to 21 percent, and analysts said that the lower-than-expected hike indicates that the bank president may not have much freedom to confront inflation strongly under Erdogan’s supervision.
1687556553
#raising #interest #rates #Turkish #lira #continue #decline
