News & Analysis

The Turkish lira continues to get its teeth kicked in after a series of events over the last weeks pushed USDTRY above the 9.00 handle.

The lira’s losses continued this morning as markets awoke to the news of three CBRT members being fired by President Erdogan. Among the three, Deputy governors Semih Tumen and Ugur Namik Kucuk were removed from their positions, along with MPC member Abdullah Yavas. Kucuk was reportedly the only member of the committee who voted against the recent interest rate cut, but it is likely all three members disagreed with Erdogan’s calls to continue the aggressive easing cycle that began last month. With the three members being a potential threat to Erdogan’s neo-fisherite views, he showed them the door.

Given the latest developments, investors will now be positioning themselves for further rate cuts in the coming months.

President Erdogan is no stranger to political interference in Turkish monetary policy and capital markets, given he has fired various central bankers in the last years whose views differed from Erdogan’s controversial view on interest rates. In some of the previous sacking cycles, however, the lira was mildly supported by a more prudent and predictable monetary policy stance. This time around, with real rates sitting in negative territory already and inflation expected to pick up in the coming months due to exchange rate depreciation and rising European energy costs, today’s announcement only adds to the lira’s woes as the first step towards policy easing has already begun.

Looking ahead, next year’s moderation in inflation as base effects will flip may help the lira recover only moderately while a slowdown in rising US yields would also support the currency, but with foreign investment already in tatters and the lira becoming a quick one-way trade for markets, the near-term TRY window looks anything but rosy.


USDTRY breaks through another record-high as CBRT announcement adds to ongoing lira distress


Author: Ima Sammani, FX Market Analyst


Sammani spoke with Bloomberg on the significant moves in TRY today. Read the full commentary here.



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