Turkish lira in free fall after latest rate cut urged by Erdogan
Turkey's lira crashed 8% to new all-time lows on Tuesday after the central bank, under pressure from President Tayyip Erdogan, insisted on with a rate cut seen as dangerous for the big emerging market economy.
The currency hit 12.30 to the dollar in volatile trade and also touched new lows against the euro, its worst day since a full-blown currency crisis in 2018.
The lira has lost more than a third of its value in the last eight months due to concerns by both investors and savers over premature monetary easing and inflation soaring to near 20%, both of which have eaten deeply into Turks' earnings.
The central bank's credibility is in tatters after analysts say it has buckled to Erdogan's calls for monetary stimulus, and after the president rapidly overhauled its leadership.
A day after Erdogan pledged to keep battling interest rates "to the end", the central bank cut the key rate by another 100 basis points to 15%.
PENDING ELECTIONS
The lira has been the worst performer in emerging markets in recent years. The latest meltdown is the sharpest since March when Erdogan sacked a former hawkish central bank chief, Naci Agbal. In the midst of a 2018 crisis, the currency shed more than 25% in a week.
Reverberations of the latest rate cut rippled through Turkish assets, with lira volatility gauges surging to their highest since April and sovereign dollar bonds plunging.
The cost of insuring exposure to Turkey's debt through credit default swaps jumped to 438 bps, the highest since Nov. 1.
Local bond yields have climbed sharply since the easing cycle began, with Turkey's 10-year benchmark bond yield climbing to as much as 19.5%, from Wednesday's close of 18.95%.
The policy easing has left Turkey's real yields deeply negative, but also delivered stimulus long sought by Erdogan who has called for a boost to exports and credit.
Inflation is four times the official target and has lingered in double-digits for most of the past five years. The lira depreciation also pushes prices higher in Turkey via imports.
Turks have cited economic mismanagement in opinion polls that show Erdogan's support at multi-year lows. Elections are due no later than mid-2023.
Info from @Reuters - https://www.reuters.com/world/middle-east/turkish-lira-plunges-near-11-ahead-expected-rate-cut-2021-11-18/
Since No Elections are taking place before 2023 and the plans of Turkish Governments remain in the way they are - there's no light in the end of the tunnel for the Lira.
AS DXY (Dollar Index ) broke above the Key resistance level of 95, the strength of Dollar is out of the question and it should continue to the upside.
Given the shady management of Turkish Government and The Current rate of depreciation of Turkish Lira - The Rally in USDTRY is most likely to continue, until Turkish Goverтment changes their monetary stance.
Next area of potential profit taking is around 13.30 TRY for USD.
