Investing.com – is heading for its worst month since August 2018, increasing speculation that the central bank will raise interest rates again.
Since the beginning of October, the Turkish lira has lost about 7% of its value against the US dollar, which brings to mind the collapse of the Turkish lira two years ago, and forced the Central Bank to raise lending expenditures by 625 basis points.
And what is like yesterday, Turkey is exposed, as it was, to a number of geopolitical risks and concerns about the lack of independence of monetary policy, and this will contribute to weakening the Turkish lira. Investors say the central bank must intervene even before the next meeting is due on November 19.
This will not be the first time, so the central bank raised the interest rate in May 2018, an emergency increase by 300 points, to stop the successive losses of the Turkish lira, and upon its meeting in January 2014, a decision was made to raise the interest rate by 600 points.
“There is no reason to prevent the Turkish lira from moving and breaching the level of 9.00 lira per dollar in the coming weeks,” says Tatha Goss, from Commerzbank.
The Turkish lira weakened 1.6% to $ 8.33 on Friday, to record the largest losses among emerging market currencies.
The Turkish central bank has rejected investors’ pleas to raise the interest rate, and kept the rate at the same levels.
Turkey stands on the edge of a sea of crises, the first of which is the diplomatic dispute between Turkey, Greece and Cyprus over exploration rights in the eastern Mediterranean region. This conflict deepened the rift between Ankara and the Western allies, and over the past week there was a determined blow. By Wednesday, the central bank raised its year-end inflation forecast to 12.1%, from its previous forecast of 8.9%.
During the current turmoil, the central bank kept the door open to the possibility of appropriate action.
The governor of the Central Bank said that Turkey would take all necessary steps, including raising interest rates, and added that the Turkish lira was debased.
But he added that the central bank would not target the exchange rate of the lira, and warned that the weakness of the Turkish lira posed a risk to price stability, and added that policy makers will keep their monetary policy tight until inflation improves.
However, this did not convince the investors, who continued to conduct negative currency speculation.
“We think the emergency rate hike will come at any time,” says Wayne Thien of Brown Brother Harriman.
But what would happen if the central bank raised the interest rate?
This does not guarantee the Turkish lira’s losses, Bloomberg says.
The Turkish lira rose strongly in the months following the surprise increase in September 2018, but ended the year down by more than 30%, the second largest losing currency in emerging markets. After an emergency rate hike in 2014, the Turkish lira ended the year down by 8%.
At the core of the problem lies the lack of investor confidence in the Turkish president’s monetary policy interventions. Erdogan favors job growth and creation and adheres to unconventional strategies.
For its part, the central bank has gained a reputation for manipulating liquidity by raising borrowing costs, but it keeps the interest rate stable.
“The current interest rate is aiming for a temporary tightening in an unconvincing way,” says Timothy Ashe of Blue Bay. “In fact, individuals do not believe that the central bank focuses on inflation, and they see it as focusing on growth and jobs, and surveys of increasing popular support for the ruling party.”