Turkey’s lira slumped as the euphoria surrounding Thursday’s jumbo interest-rate hike subsides, with questions arising over whether the aggressive move has the blessing of President Recep Tayyip Erdogan.
(Bloomberg) — Turkey’s lira slumped as the euphoria surrounding Thursday’s jumbo interest-rate hike subsides, with questions arising over whether the aggressive move has the blessing of President Recep Tayyip Erdogan.
The lira weakened as much as 2.7% against the US dollar on Friday, the worst performance across emerging markets. The morning slide erased about half of the currency’s gains from Thursday.
Turkish assets rallied after the Monetary Policy Committee, with newly appointed members led by Governor Hafize Gaye Erkan, surprised investors with a bigger-than-expected increase in the benchmark one-week repo rate by 7.5 percentage points to 25%.
Yet the rally may prove short lived, with investors bracing for the risk of more political meddling in monetary policy. Erdogan has chased out three central bank governors since 2019, spurring an exodus of capital that has weighed heavily on the lira.
“If in the coming days President Erdogan comments on the latest stunning decision and he strongly indicates that Governor Erkan and her team have his full support, the lira may become one of the most popular EM currencies,” said Piotr Matys, a currency analyst at InTouch Capital Markets. “At least until the Turkish president decides to reshuffle the Turkish central bank once again.”
As of 10:18 a.m. in Istanbul, the lira was trading at 26.503 against the dollar, down 2.6% on the day, on track for its worst session since June.
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