The Turkish lira is rebounding against the US dollar on Tuesday ahead of a crucial central bank policy meeting. The lira had slumped to a new record low over the governmentâs response to volatile foreign exchange rates that the private sector warn is destroying commerce in the fragile economy. The lira has been further decimated on dwindling foreign reserves, also supporting Wall Streetâs bearish sentiment over the currency.
For more nearly two consecutive trading weeks, the currency has weakened in value that has been primarily driven on the central bankâs depleting forex reserves, which has been coupled with Turksâ rising demand for hard currencies. Despite the financial authoritiesâ interventions in the forex market, Turkey has done more harm than good to the lira.
Although President Recep Tayyip ErdoÄan has been opposed to increases to interest rates, analysts are betting that the central bank will choose to move ahead with a rate hike on Thursday, from 8.25% to 10%. This expectation has been supported by rising inflation, as well as last monthâs decision to ease monetary policy. Plus, the central bank has taken actions to pump liquidity into financial markets and mandating lenders to borrow at higher rates.
On Monday, the central bank injected $1.36 billion in repurchasing agreement actions at an average simple rate of 11.25%, a three-point jump above its one-week repo rate.
Will this be enough to rescue the lira? Not quite, says Deutsche Bank AGâs Christian Wietoska, who told Bloomberg:
We target 12% by September and in case lira does not stabilize. Anything else would keep the pressure high on Turkish local assets, particularly during periods of a deteriorating external backdrop.
The central bankâs weekly data found that US dollar deposits climbed by $4.79 million to $136 million, and non-bank corporate entitiesâ holdings advanced by $1.83 million to $83.5 million. Between July 10 and August 7, private and corporate firms have purchased $16.99 million, which raises the total dollar deposits to $219.5 million.
Speaking in an interview with local media, Finance Minister Berat Albayrak dismissed concerned over volatile exchange rates, stating that the exchange being âcompetitiveâ is more important. But industry leaders warn that once inventories run out, prices are going to skyrocket in the months to come.
The USD/TRY currency pair tumbled 0.19% to 7.3695, from an opening 7.3831, at 15:21 GMT on Monday. The EUR/TRY jumped 0.28% to 8.7892, from an opening of 8.7648.
If you have any questions, comments, or opinions regarding the Turkish Lira, feel free to post them using the commentary form below.