Turkish lira to continue to suffer, massive wave of selling possible – Commerzbank

The Central Bank of Turkey (CBT) last Thursday rather boldly lowered the one-week repo rate by a point to 12% per annum. The USD/TRY pair (US dollar – Turkish lira) gained momentum after the decision of the financial regulator, and the Turkish national currency will remain under pressure, noted today, September 23, in the German Commerzbank.

“Reducing the key rate by 100 basis points to the current 12% with an inflation rate of more than 80% (in annual terms) should be seen by the market as courage. Based on the traditional theory of monetary policy, which does not justify lowering interest rates during a period of rising inflation, the foreign exchange market sees this and puts pressure on the lira,” – say analysts of the banking group headquartered in Frankfurt am Main.

According to their forecast, the CBT “could prevent more pronounced weakness in the lira for a while with soft capital controls (its so-called liraization policy).”

“But if the market gets the impression that things have gone too far (it’s hard to predict exactly what might trigger this), it could face a massive wave of selling. We remain cautious and expect the lira to weaken further.” concluded at Commerzbank.

The Central Bank of Turkey on September 22 lowered its key interest rate by 100 basis points – from 13% to 12%. The decision of the financial regulator to revise the rate downward was the second in the current year. Even before the appearance of information about the next reduction in the key rate, the Turkish national currency at auction in Istanbul, as reported EADailyrecorded a new all-time low against the US dollar, breaking the level of 18.38 per $1.

During these hours, the lira exchange rate exceeded 18.4 for $ 1.

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