This week’s sell-off has seen USD/TRY climb back above the 7.2000-level after threatening to break below the 7.0000-level earlier this month. Nonetheless, economists at MUFG do not believe the lira sell-off is sustainable.
“The turnaround in sentiment has followed comments from President Erdogan defending the policies implemented under former Finance Minister Albayrak against critics who say they cost Turkey more than $100 billion in FX reserves. He also told parliament that ‘we are determined to reduce inflation, stabilize FX rates and cut interest rates’.”
“The lira sell-off this week highlights that it will remain sensitive to any signs that the CBRT is softening its resolve to maintain a tight policy. Market participants have questioned CBRT policy after they raised the reserve requirement ratios by 2% for all lira liabilities on Wednesday to tighten liquidity. It has cast some doubt on whether the CBRT is now moving away from tightening policy by hiking the key policy rate. A step that would inspire less confidence amongst market participants.”
“For now, we remain encouraged by the CBRT’s commitment to maintain a tight monetary policy until there is clear evidence of falling inflation. We do not expect the sharp lira sell-off to prove sustainable.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.