Turkey’s lira lags EMEA FX ahead of crucial rate move, new virus curbs

The Turkish lira eased on Wednesday after the imposition of tighter coronavirus restrictions, while investors looked ahead to a central bank meeting on Thursday on hopes of a sharp interest rate hike that could temper rising inflation.

The lira staged a sharp rebound last week after plunging to record lows this year, on optimism that Ankara would follow more orthodox policies after a leadership overhaul and market-friendly comments from President Tayyip Erdogan.

The currency weakened 0.5% to 7.709 per dollar at 0838 GMT underperforming most of its peers in Europe, the Middle East and Africa for the day, but Turkish stocks jumped more than 1% boosted by solid gains in the financial sector.

The introduction of partial lockdowns on weekends and new virus curbs in the tourism-dependent economy dampened risk appetite, but focus remained on the crucial rate decision at the first central bank meeting under new governor Naci Agbal.

The bank is expected to hike its policy rate to 15% on Thursday from 10.25%, according to a Reuters poll.

Adam Cole, Chief Currency Strategist at RBC Europe, said the Turkish central bank could not walk away from this meeting without a rate hike, but he said it would not be surprising “to see the CBRT deliver less than market expectations and the market remain positive on the lira in the near term”.