Doubts Over Rate Policy Fuel Currency Volatility
The Turkish lira (TRY) remains under pressure as concerns grow over whether interest rates are high enough to curb rising inflation, according to Commerzbank analyst Tatha Ghose.
In a market note, Ghose highlighted that 12-month household inflation expectations rose to 59.2%, as reported by the Turkish Central Bank on Tuesday. He emphasized that this figure is significant as it influences wage adjustments and broader inflation trends.
Is the 45% Policy Rate Sufficient?
Ghose suggested that investors remain skeptical about the effectiveness of Turkey’s current 45% policy rate in delivering a positive inflation-adjusted real rate.
“Market participants may not believe that the 45% policy rate produces a positive inflation-adjusted real rate. In the absence of such a belief, the lira continues to be exposed to greater volatility in a risk-off environment,” he stated.
USD/TRY Hits Record Levels
The USD/TRY exchange rate held steady at 36.4343 on Wednesday after hitting an all-time high of 36.7079 on Tuesday. The lira’s continued depreciation underscores the market’s uncertainty over Turkey’s monetary policy and its ability to stabilize inflation expectations.
Key Takeaways
- Rising inflation expectations (59.2%) raise concerns over wage pressures and price stability.
- Doubts over Turkey’s 45% interest rate policy could lead to further lira volatility.
- The lira remains fragile, hitting a record low of 36.7079 per USD before stabilizing.
As investors monitor Turkey’s economic policies, market sentiment will likely be influenced by future central bank decisions and inflation trends.