Lira wobbles as Turkey's central bank set to hold rates again
- Last month the bank's policy-setting committee said policy would remain steady until a "significant fall" in its inflation forecast is achieved.
ISTANBUL: Turkey's lira is on a three-day skid heading into a central bank decision on Thursday at which interest rates are expected to be held steady at 19%, and analysts await signals of when policy easing will finally come.
The currency has shed 2.5% this week after the first meeting between President Tayyip Erdogan and US counterpart Joe Biden yielded no breakthroughs on key disputes, and after the US Federal Reserve on Wednesday sounded more hawkish.
The lira, among the worst performers in emerging markets this year, was slightly weaker at 8.63 to the dollar at 0630 GMT. It touched a record low 8.88 earlier this month.
The 13% depreciation this year accelerated when Erdogan ousted a hawkish and well-respected central bank governor in March, stoking concerns of premature rate cuts and further eroding the credibility of a bank that has seen four chiefs in two years.
In turn, the lira weakness has raised prices via Turkey's heavy imports and inflation is expected to remain near 17% most of the year. Fitch Ratings and Goldman Sachs say premature rate cuts are the main risk for Turkey's lira and economy.
"When you sack a third governor in such a short space of time it's very hard to then restore confidence and the independence and the credibility of the central bank," Douglas Winslow, Fitch's director of European sovereign ratings, said during an online presentation last week.
Governor Sahap Kavcioglu has repeated the central bank will keep the key rate, now at 19%, above inflation in order to cool prices. According to a Reuters poll, the first cut is not expected until the fourth quarter.
Last month the bank's policy-setting committee said policy would remain steady until a "significant fall" in its inflation forecast is achieved.
A quicker-than-expected tightening of the Fed's ultra-loose policy poses another risk for emerging market economies. The US central bank signaled on Wednesday that rate rises could come next year as the economy emerges from the pandemic.
Comments
Comments are closed.