Poster of Turkish Prime Minister Recep Tayyip Erdogan and Turkish flag on a building in Bursa,Turkey.20 May 2018
The USD/TRY exchange rate is hovering near its all-time high of 19.33 despite a small decline of inflation in Turkey. It was trading at 18.64 on Thursday, where it has been in the past few days. In all, the Turkish lira has collapsed by 81% from its lowest level in December last year, making it the worst-performing currency in the emerging markets.
The Turkish lira collapsed and then held steady at its all-time low in 2022. This decline was triggered by three main factors. First, it declined because of the broad surge of the US dollar. The dollar index surged to its multi-decade high of $115 as the Federal Reserve embraced its most hawkish tone in decades. The bank hiked interest rates by 400 basis points between January and November.
Second, the USD/TRY surged because of the rising inflation in Turkey. According to the statistics agency, inflation peaked at 85.5% in October, meaning that Turkey has moved into hyperinflation. Data published this week showed that inflation eased slightly to 84.39% in Novcmber. In a statement, the country’s finance minister said that the country has left peak inflation.
Third, the USD to TRY rate surged because of the actions by the Central Bank of the Republic of Turkey (CBRT). The bank took the unconventional route of slashing interest rates during a period of high inflation. In November, it cut interest rates by 5% to 9.95%. The bank believes that low-interest rates will lead to more productivity and low growth.
Turkish president has been a top advocate for low-interest rates. He argues that the collapse of the Turkish lira has been caused by foreigners and panic about the government’s policies. He is instead focusing on growing investments, growth, and employment.
The Turkish lira will likely continue falling in 2023 because of an upcoming election. This election will likely see Erdogan increased his spending and the CBRT slashing interest rates.
The daily chart shows that the USD to TRY exchange rate has been in a consolidation phase in the past few months. In this period, it has remained close to its all-time high and consolidated at the 25-day and 50-day moving averages. The falling volatility has seen the Average True Range (ATR) collapse to its record lows.
Therefore, the USD/TRY price will likely end 2022 in this range and then have a bullish breakout in 2023. This rebound will happen because of the election and potential tax cuts in the country. If this happens, the Turkish lira will collapse below 20.
This post was last modified on Dec 08, 2022, 03:55 GMT 03:55