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The Turkish lira remains at record lows after pressure from Erdogan to lower rates further


The Turkish lira, closely followed by BBVA's exposure to the currency, made headlines again this Tuesday after the Central Bank of Turkey announced that will cut liquidity limits in half offered to primary traders, after the new historical lows of the Ottoman currency against the US dollar and the euro last Friday in 7.355 per dollar and 8.70 per euro, on which the coin has continued to plan.

“The normalization measures should slow down, but it is unlikely that they will reverse the sell off of the lira with inflation hovering around 12% against the central bank interest rate of 8.25%, and the 5-year CDS close to highest on record, ”says Ipek Ozkardeskaya, an analyst at Swissquote Bank. The market is actually expecting rates to rise as a measure to contain the currency's decline at the August 20 meeting, but the country's President Recep Tayyip Erdogan said on Monday that wants to cut interest rates further, even after a series of downgrades this year amid attempts by central bankers to combat the economic impact of Covid-19.

"God willing, they will go even lower," the leader, a firm believer that high borrowing costs fuel inflation, said in a televised speech Monday. The seriousness of the situation in Turkey, where its central bank has not managed to contain the drain on the foreign exchange reserve despite multiple interventions, further weighs on the currency, which has suffered a depreciation of 9% against the euro and about 6% against the dollar just in the last month.

“Going forward, investors need time to restore confidence in the central bank's ability to stabilize the lira following consecutive interest rate cuts ahead of the pandemic that raised many questions regarding the bank's independence and response. politics lost to the pandemic, ”says Ozkardeskaya.

Never was so little paid for the Ottoman currency. "Is a underlying free rise / fall free depending on how you look at it. In free fall if we look at it as a devaluation of the Turkish currency against the greenback and against that there is nothing to do ", explains José María Rodríguez, technical analyst at Bolsamanía.


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