The Turkish lira rallied by more than 20% against the dollar to below 7 for the first time since early August 2020.
The rise in the value of the Turkish lira to this level comes after the appointment of a new central bank governor. In addition, a new finance minister was appointed last November which led to expectations of adopting a more traditional policy.
Financial indicators showed that the Turkish currency recorded a 0.5% increase during today’s session. The currency continues its rise drive, which began three months ago, supported by expectations of tightening monetary policy.
The currency was at 6.9750 at 9:15 a.m. GMT. It has risen more than 6% so far this year, by far the best in emerging markets (EM). Earlier it hit its strongest level since Aug. 5 at 6.97.
Interest rate remains
The Turkish Central Bank announced Next Thursday that it would keep the interest rate at 17% in repurchase operations (repo) for a week. The central bank added that economic activity is on a strong path, despite the negative repercussions of the Coronavirus pandemic.
The central bank raised interest rates last December by 200 basis points, from 15% to 17%.
Last January, Naji Aghbal, governor of the Turkish Central Bank, said that the Turkish lira gains against the dollar will reduce inflationary pressures.
Aghbal added, “Producer price inflation will continue to rise, so consumer prices will continue to be under pressure.”
Turkish President, Recep Tayyip Erdogan, said last January that Turkish currency value increase and gold prices decline have contributed to reducing the central administration debt since last November, by about 150 billion pounds.
In the same context, Ahmet Kirman, CEO of the Turkish Glass Industry Company, said that “having an exchange rate (that is more balanced but allows exports to continue) is important for the Turkish economy.
He called for the “the importance of not allowing a significant increase in Turkish currency against other major currencies to maintain the competitiveness of Turkish products in foreign markets”.
Turkish Lira monetary policy
The central bank had said it will maintaining a tight monetary policy with the possibility of additional monetary tightening if necessary. The strategy is aimed at achieving strong indicators that point to a sustainable reduction in inflation and achieve price stability.
Earlier in January, the Turkish central bank pointed to the continuing slowdown in services and related sectors, and the uncertainty regarding the short-term outlook for these sectors.