Earlier this week, the Lira (TRY) advanced in response to the Turkish central bank’s decision to refrain from holding an unscheduled gathering to cut borrowing costs.
Although Turkish President Recep Tayyip Erdogan has been putting the central bank under intense pressure to slash interest rates, which resulted in a surprise cut in January, the central bank stood its ground after the proposal for further adjustments saw the Lira drop to a record low.
After citing the improvement in domestic inflation as the reason for abandoning the second rate cut, the central bank said that it would be assessing ‘the inflation outlook in detail at the regular meeting’ – due to be held towards the close of February.
The announcement helped the Lira extend an earlier advance against the US Dollar, and the USD/TRY pairing fell -0.6% to trade in the region of 2.41. The currency pair had previously plummeted to a record low of 2.448 on January 30
th
.
However, the Lira went on to fall to a fresh record low of 2.4650 in response to President Erdogan’s aggressive comments regarding the ‘deficiencies’ of the Turkish central bank’s policymakers.
The Lira tumbled by around by around -1.44% against the US Dollar after Erdogan asserted; ‘There are still those who don’t understand that if you cut interest rates you’ll cut inflation. Some are trying to hold Turkey back with high interest rates.’
Although the Turkish central bank is legally independent from the government, Erdogan’s attempts to get the institution to bow to his demands are having a negative impact on the domestic currency and social sentiment.
He went on to state; ‘It is called an independent board, but this is where we end up… We have to be at a better place, we have to succeed in this.’
Industry expert Lars Christensen said of the recent developments and the Lira’s subsequent movement; ‘Erdogan and his government are becoming increasingly detached from the economic reality. Obviously this continued talk is putting pressure on [the Central Bank Governor] and the Turkish central bank… With this continued gradual centralisation of power and increasingly disregarding economic realities you are going to add more volatility.’
The US Dollar to Turkish Lira (USD/TRY) exchange rate is currently trading in the region of 2.4411
The Turkish currency could experience additional movement tomorrow following the publication of domestic retail sales figures. Retail sales are expected to have increased by 0.66% on the month in December following November’s 0.6% gain. The highly-influential US Non-Farm Payrolls report will also have an impact on USD/TRY trading.