Turkish Lira (TRY) Exchange Rates Fall Further over Fears Central Bank is Losing Control
The Turkish Lira (TRY) exchange rate has resumed its inexorable slide today, falling around 1% against the US Dollar (USD), only a day after the country’s central bank hiked interest rates.
At yesterday’s monetary policy meeting bankers raised the one-week repo rate by 125 basis points, meaning the base interest rate in Turkey now stands at 17.75%.
TRY/USD jumped by more than 2% following the move, although this could not be sustained.
Following the brief rally the Turkish Lira resumed its slide against peers, falling against a basket of currencies as the central bank desperately tried to halt the devaluation that has seen currency lose some 15% so far this year.
Moody’s Downgrades Turkish Banks Following Interest Rate Hike
Credit ratings agency Moody’s today downgraded, or placed on review for downgrade, 17 Turkish banks following the latest interest rate hike.
This rattled investors, causing banking stocks to lose around 2%, raising questions about the sustainability of the sector and causing optimism to plummet.
It has only been a week since the central bank raised interest rates by 3% in an effort to combat inflations and support the Turkish Lira (TRY) which, along with a number of other currencies from emerging markets, is struggling to stay afloat.
Investors Fearful of Erdogan Exerting Further Influence over Monetary Policy after ‘Mother and Father of all Evil’ Comments
The Turkish Lira (TRY) has been struggling to hold onto its value since last month, when Turkish President Recep Tayyip Erdogan stunned Forex traders by saying interest rates were ‘the mother and father of all evil’.
Ironically, in the wake of his comments the Lira plummeted, forcing the central bank to begin a round of interest rate hikes.
The fear now is that Erdogan will continue to exert control over monetary policy in the run-up to elections which will take place on 24 June.
In a bid to boost economic growth and stoke credit creation, the Turkish President is keen to see borrowing costs slashed again.
However, with yields on 10-Year bonds hitting 14.62% on Friday afternoon it appears that investors don’t see an end to high borrowing costs any time soon.