December 5, 2022

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Turkish Lira Plumbs New Low Beyond 15 Before Rate Decision

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ISTANBUL, Dec 16 (Reuters) – The Turkish lira dropped to an all-time low beyond 15 to the dollar on Thursday, ahead of another expected cut in interest rates that have fallen in accordance with an unorthodox economic programmeset out by President Tayyip Erdogan.

The lira , which weakened as much as 2.9% to 15.25, was trading at 15.15 at 0935 GMT. The U.S. currency has more than doubled in value against the lira so far this year, rattling Turkey’s big emerging market economy. read more

With inflation soaring above 21%, Turks’ budgets are straining and anxieties are building.

Nevertheless, the central bank is expected to cut its key rate by 100 basis points to 14% at Thursday’s policy meeting, according to a Reuters poll, making the local currency even less attractive to investors. It will announce its decision at 1100 GMT. read more

“An experiment is being conducted and Erdogan is in charge,” said Guldem Atabay, economist at Istanbul Analytics. “Interest rates will be brought down as far as they can.”

The bank has cut its key rate (TRINT=ECI) by 400 basis points to 15% since September under Erdogan’s plan to prioritise exports and lending, even though economists and opposition lawmakers have widely criticised the policy as reckless.

“The downside of the lira could be quite sharp in the event that the central bank simply ignores what has gone on over the past fortnight and continues to cut interest rates by the same margin that it otherwise might have,” Commerzbank said in a note.

The central bank, which said last month it would consider “completing the use of the limited room” it has left for cutting rates in December, has intervened four times in the currency market in the last two weeks, selling dollars to slow the lira sell-off and eating into its already depleted foreign reserves.

EYES ON MINIMUM WAGE

According to the central bank, which targets 5% inflation, the price pressure is temporary and necessary to expand economic growth and balance the current account.

But given the lira’s crash, economists predict inflation will jump to near 30% next year due largely to soaring import prices.

A commission was meeting at the labour ministry from 0800 GMT to fix the monthly minimum wage, currently at 2,826 lira net, for 2022. Erdogan was set to announce its new level at 1200 GMT, officials said.

Its dollar value has tumbled to $185 at Thursday’s low, from $380 at the start of the year.

Erdogan has overhauled the central bank’s leadership this year, bringing in like-minded officialsto replace orthodox policymakers, leaving its credibility in tatters, analysts say.

The lira was also hit by the U.S. Federal Reserve’s hawkish decision on Wednesday to end its bond-buying stimulus in March, and project up to three U.S. interest rate increases next year to tackle heated inflation. read more

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