Not to be outdone by the sell-off in the Russian rouble, Turkey’s currency took a fresh fall on Tuesday, hitting another historic low ahead of an important economic report and amid rising worries over capital outflows.
Investors say the bulk of Turkey’s problems are homegrown, pointing to worries that Erdogan has excessive influence on monetary policy. A self-described “enemy of interest rates”, he has repeatedly called on the central bank to lower rates to boost growth, even though inflation in running at double digits.
However markets at the moment really want to see a rate hike by the central bank, as a sign that it is still a credible institution; that it’s taking its inflation targeting somewhat seriously and that it is prepared to stand up to government pressure. However due to administration intervention to Central Bank fiscal policy, Central Bank cannot do that.
Analysts believe that unless Central Bank takes a decisive decision on monetary policy, current pressure on Turkish Lira will remain intact.
