Investing.com – Trading fell during these moments, today, Tuesday, to a new record low against the dollar, due to concerns that the central bank may raise this week less than expected, as happened in the previous meeting.
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At the same time, the budget deficit recorded about 219.6 billion Turkish liras during the month of June, compared to recording a surplus of about 118.9 billion liras in May.
This comes in conjunction with the start of the Turkish President’s visit to the Gulf states, starting yesterday, with the aim of attracting more foreign investments, estimated at about 25 billion from the Kingdom of Saudi Arabia, the United Arab Emirates and the State of Qatar.
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Turkish lira today
The lira recorded a record low of 26.9 against the US currency, by 2.2%, declining from Monday’s closing at 26.3505. It has weakened by 30% so far this year.
While it fell to the level of 30.29 pounds per euro, down by 2.33%.
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Reasons for today’s record decline
Turkey’s central bank is expected to raise its policy rate by 500 basis points to 20% this week, as the bank pledged further tightening to curb inflation, which is set to pick up again.
However, Abdelkader Selvi, a senior columnist for Hurriyet newspaper, wrote on Tuesday that his impression from “economic circles” is that the interest rate will rise to around 16.50-17.0%.
The central bank will announce its interest rate decision at 14:00 KSA on Thursday.
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“The news that the central bank will raise interest rates will be less than market expectations leads to a depreciation of the lira,” a trader told Reuters.
He added that “the gradual increases in interest rates were already a difficult path, but the concern in the market that the increases may not be sufficient is beginning to be clearly reflected in the prices.”
In June, the central bank raised its policy rate by 650 basis points, or 15%, and promised to continue tightening until there is a significant improvement in inflation expectations.
The rate hike and hawkish tone were the strongest signals of a reversal after years of low interest policy under President Recep Tayyip Erdogan, who prioritized growth and investment.
But the rate hike at the June meeting was less than expected, with economists saying Erdogan’s influence on the central bank limits how far they can go in tightening monetary policy.
Turkey’s annual inflation rose to a 24-year high of 85.51% last October, mainly due to the depreciation of the lira due to Erdogan’s policy of targeting low interest rates. However, inflation eased to 38.21% in June but is expected to rise again.
2023-07-18 08:56:00
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