Sun, August 14, 2022

Turkey’s lira falls 2%; central bank monitoring forex risks

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The Turkish lira fell by 2.7%, consuming further, as concerns continued over rising inflation and strange monetary policy.

There was little reaction to the central bank’s 2022 policy document. It said it would start monitoring risks connected to forex and do what is necessary to guarantee it runs smoothly. The lira fell 12.12 against the dollar and traded at 12.04. Despite the fact that it managed to surge more than 50% last week, it has lost 38% of its value this year.

The bank said that the CBRT has no obligation to any exchange rate level. It also said that it would not operate FX buying or selling transactions to define the level or direction of the exchange rates.

The bank said it would use resource needs to support its pursuit of price and financial stability. It added that it would continue signing swap agreements with other central banks.

Last week, the lira managed to strengthen by around 50% after billions of dollars worth of state-backed market interventions restored the currency to its mid-November levels.

Last week, President Tayyip Erdogan revealed an incentive to convert forex deposits into lira. The Treasury and Central Bank will compensate losses due to any lira value erosion during the deposit period.

Turkish lira in the past

Before Erdogan’s announcement, the lira hit an all-time low of 18.5 to the dollar. It happened after weakening for months because of concerns of surging inflation after interest rate cuts aimed by the president.

Annual inflation is forecast to have hit 30.7% in December. a Reuters poll found breaching the 31% level for the first time since 2003. It was the year when Erdogan’s AK Party first came to power.

Since September, the central bank has cut its policy rates by 500 basis points to 15%.

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