The worst is yet to come for the lira despite record lows
Uncertainty surrounding the economic reforms and the presidential system debates pushes the lira to record low against the dollar for the second time in two weeks
Although the Turkish lira hit a fresh record low against the US dollar with 3.1140 this week, analysts warn the worst may not yet be over as domestic concerns and regional issues continue to be determinants for the market.
Mosul operation, talk of a referendum for executive presidency, and the uncertainty surrounding the fate of the economic reform, crucial for the country’s credit rating, continue to push the lira down the hill, according to economists.
“The adverse turn in the global backdrop has coincided with numerous domestic concerns as growth slows, the external balance starts moves in the wrong direction and the macro policy mix is set to loosen. We think this combination will continue to hurt TRY and the government’s prioritization of growth over disinflation and external rebalancing will be negative for the long end of the yield curve,” said Nomura Global Market Research economist Inan Demir in a report.
Demir said a near-term referendum would “increase the government’s resolve to support growth, leading to market concerns about an even looser monetary stance.”
Under government pressure to reduce interest rates, Turkey’s central bank is due to announce its policy decision for October this Thursday afternoon. While the market expects the 25 bps rate cuts to continue, international banks like Goldman Sachs expect the bank’s president, Murat Cetinkaya, to hold the rates steady for the first time since he was appointed in April.
Turkish officials, however, remain calm in the face of such warnings and reports, with numerous high ranking figures calling the fall in lira “temporary.”
The government spokesperson and deputy prime minister, Numan Kurtulmus, dismissed the fall in lira and said the “conjunctural move” would return to normal, stopping short of specifying the normal.
President’s spokesperson Ibrahim Kalin and senior presidential advisor Cemil Ertem are also among those expecting the lira to get back to around 3 per the dollar.
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