The Turkish lira weakened on Monday as investor concerns grew over deteriorating economic conditions in the country. The lira weakened about 0.7%, leading losses across Europe, the Middle East and Africa (EMEA) after data showed a higher-than-expected Turkish current account deficit in February, while the unemployment rate also rose.
Inflation expectations for the country have jumped in recent weeks on doubts over whether the central bank will keep policy tight, amid constant pressure from the government to reduce interest rates.
Turkey’s central bank is expected to keep its policy rate at 19% at its first meeting after President Tayyip Erdogan fired the hawkish former governor, a Reuters poll showed on Monday, while some warn that a surprise cut would hit the lira hard.
While Erdogan’s removal of Naci Agbal last month led to expectations that rates would be slashed immediately, Governor Sahap Kavcioglu’s promises of tight policy have convinced analysts that the bank will forego a rate cut on Thursday.
All but two of 19 economists that participated in a Reuters poll forecast that the central bank would keep its one-week policy rate unchanged this week.
One predicted a cut to 18.50% and another to 17%.
But expectations of a rate cut this year have been brought forward after Kavcioglu’s appointment, with five of 14 respondents expecting a cut this quarter, seven in the third quarter and two in the fourth.
In a previous poll done before Agbal’s dismissal, 10 respondents saw a cut in the third quarter and eight saw it in the fourth quarter.
Reuters