USD/TRY is moving towards the lifetime high at 8.4677, reached on March 30, 2021. CBRT policies are driving up inflation and the Turkish lira higher.
Soaring interest rates and fragile economic conditions have taken the Turkish lira to life highs. The constant change in the central bank leadership makes investors lose confidence in the Turkish lira. Further, President Joe Biden terms the Armenian killing of 1915 as genocide.
Turkish Lira Moves Higher Amid Inflation
USD/TRY currency pair was at a lifetime high at 8.4677 on the last day of March. The currency pair is rising towards this level again, as it closed at 8.3762 for the weekend. Political unrest and inflation are weakening the lira as economic activities are affected. The lira saw a major uptrend on March 22, as the USD/TRY shot up from 7.2205 to 8.1795. The US dollar to the Turkish lira surged higher by 15% when President Erdogan fired the central bank governor Naci Agbal.
The US Dollar against the Turkish lira has been on an uptrend for the past six trading days, after a month-long consolidation. If turmoil continues, the lira may move even higher, say experts.
Governor Kavcioglu Hints at Easing of Policy Rates to Move Lira Higher
The USD/TRY currency pair fell almost 10% after the appointment of the new governor Kavcioglu. Inflation is increasing, and the lira is on an uptrend. Investors fear that the new governor will bow down to pressure from the President.
The CBRT has kept monetary policy unchanged, with key interest rates at 19.00%. Inflation continues to increase, and the CBRT will not be raising policy rates any further, say experts. Once inflation shows signs of decreasing, loose monetary policies will be implemented says the new governor. Consumer prices have increased by more than 16% from last year. Inflation is at double-digit levels for the past three years.
With Governor Kavcioglu taking control, more monetary easing is expected in the days ahead. The USD/TRY may move higher say, experts. Turkey is not in a position to lower rates, as the inflation outlook is high, but the governor's dovish attitude may bring in an easing in policy rates say, experts. The dollar against the lira was up 1% after the governor hinted at easing of policy rates.
Political Intervention in CBRT Disturbs Turkish Lira
Before Kavcioglu, Naci Agbal had managed to bring down double-digit inflation to lower levels, and the USD/TRY currency pair moved to the 0.70 regions. But when he quit the Turkish lira started its upward move again. Agbal had increased rates sharply more than expected and was fired by the President. President Erdogan considers high-interest rates as the cause for high inflation.
Further, investors are losing confidence in the Turkish lira as there is constant political intervention on the central bank policies. Interest rates were at 16.2% in March, while it was 15.6% in February. To bring down inflation, interest rates have to remain high, which is contrary to the view taken by the President.
President Erdogan favours unorthodox policies towards lowering interest rates. With the new bank chief Kavcioglu bowing down to pressure, it would worsen the inflation problem and bring an economic collapse which will further burden the 82 million people in the country. High inflation and increasing costs are driving the economy lower as it affects businesses and economic activities in the country.
President Biden Calls Armenian Killing of 1915 as Genocide
There is increasing tension between the United States and Turkey. The mass killings of 1915 that struck down more than 1.5 million Armenians were caused by the rash acts of the Ottoman Empire. The term "genocide" has been used by US President Biden for the systematic killing that took place in 1915.
Another incident that disturbs the relationship between Turkey and the United States is the purchase of the defense system from Russia. The US had imposed sanctions against Turkey showing its objections to the deal with Russia.
However, Turkish President Recep Tayyip Erdogan defends his country against the killing. The clash that killed the Armenians living in the Ottoman Empire during World War One was unwarranted but, it was not systematically orchestrated and could not be called genocide, states the President.
President Joe Biden had made a promise during his campaign to recognize the killing that happened during World War I. Moreover, US Vice President Kamala Harris has added support to the Armenian killing.
The relationship between the United States and Turkey is very fragile and this accusation is worsening ties between the two countries. Earlier, President Trump had a close relationship with Erdogan. But the current President Joe Biden has accused the human rights record over the incident that occurred in 1915.
The US dollar index is moving lower to multi-year lows. The USD index closed at 90.80 levels for the weekend and is moving towards the multi-year lows at 88.15
The GBP/TRY is at its life high at 11.62. There is political uncertainty between Turkey and Syria which is moving the sterling to the Turkish lira higher.