Lira on the verge of a historic fall, after another blow By Investing.com

© Reuters.

Investing.com – It seems that the pressure and blows it is receiving in recent times will not stop before the lira falls to a new historical low, while the blows it is receiving from Turkish officials continues.

A short while ago, Central Bank of Turkey Governor Shahab Kavcioglu said it was a mistake to link the recent depreciation of the lira to the bank’s cut in its key interest rate by 100 basis points to 18% in September.

Answering questions from lawmakers in the Turkish parliament’s Planning and Budget Committee, Kavcioglu said the rate cut was not a surprise and that the central bank had not neglected its duties.

Although the Turkish governor believes that the interest rate cut was not surprising, all market experts agreed that the cut was not expected, as an opinion poll before the decision revealed expectations for the Turkish Central Bank towards stabilization.

According to international banks, the Turkish lira is facing great pressure, the biggest of which is interference in the central bank’s policy, after it witnessed 3 dismissals of bank chiefs in less than two years.

historical bottom

Shehaboglu said last October 8 that he expects the main inflation indicators to decline, in the short term, adopting the view of Turkish President Erdogan, who sees that interest rates are a demon and that inflation will decline soon.

Following Davutoglu’s statements, the Turkish lira fell to a new record level of 8.99 lira against.

The lira is trading during those moments, down by 0.13% against the dollar, while hovering near levels of 8.9764 liras / dollar.

The dollar recorded 6 consecutive gains against the lira in the past 6 sessions, rising from 8.8521 liras to the current levels near 9 liras.

The Governor of the Central Bank of Turkey said that the bank will continue to determine monetary policies and the degree of their tightening, in order to ensure a decrease in inflation as soon as possible, taking into account many analyzes about the factors that affect these policies, such as the elements of demand, core inflation and supply shocks.

pressure

On Monday, data showed that Turkey’s inflation rose slightly less than expected to 19.58% on an annual basis in September, the highest level since March 2019, incurring further losses for real returns after the central bank cut the interest rate to 18%.

Annual inflation in Turkey had already risen to more than the interest rate of 19.25% in August before the cut, and had reached 18.95% in July and the official inflation target is 5%.

The Turkish Central decided to cut the interest rate by 100 basis points on repurchases, “repo” for a week, to 18%, and 23 economists were included in a survey, all of whom expected the Turkish Central Bank to keep the basic interest rate at 19% due to the rise in consumer prices.

The decision came as a sign that CBE policymakers are giving in to Turkish President Recep Tayyip Erdogan’s demands to lower borrowing costs, and the move also threatens to undermine investor confidence in state assets while eroding the real return on the lira.

Figures from the Treasury and Finance Ministry showed that the Turkish government’s debt rose by 109% during the last 3 years since the transition to the presidential system.

Expectations

Markets view the interest surprise as a negative one, as the unexpected drop in the interest rate underscores the fragility of the Turkish Central Bank’s credibility, which continues to weigh on the lira.

However, the risks of extended weakness in the US dollar due to the mood can be seen as a bit of a rescue for the lira bulls at the moment.

The MUFG Corporation of the Bank of Tokyo-Mitsubishi UFG believes that the Turkish lira will continue to decline to 9.55 Turkish liras per dollar within a year from now, and will fall during the fourth quarter to 9.0500 Turkish liras per dollar.

Societe Generale, Barclays, JP Morgan and Goldman Sachs (NYSE:) predicted further rate cuts in the coming months.

It is expected that the lira will reach the levels of 9 pounds against the dollar if it continues to decline against the US dollar, which was reinforced by the statements of Jerome Powell, the US Federal Reserve, that the tightening process will begin before the end of the year.

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