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Turkey’s lira hits new record low
The Turkish lira slipped to a new record low on Monday as investors waited for indications on policy moves after the appointment of a new central bank governor who is expected to raise interest rates.
The lira was 1.3 percent weaker at 23.65 against the dollar at 0834 GMT after hitting a record low of 23.77 overnight. It has weakened more than 21 percent this year.
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President Tayyip Erdogan on Friday appointed Hafize Gaye Erkan, previously a US-based finance executive, to head the central bank, which is widely expected to reverse course and tighten policy after years of rate cuts.
JPMorgan said on Monday it expects the bank to hike interest rates to 25 percent from the current 8.5 percent at its June meeting, Erkan’s first in charge, adding this could come with forward guidance suggesting smaller hikes ahead if needed.
“Next policy meeting is June 22 and the bank would have to hike rates aggressively in order to regain market confidence,” said Win Thin, Global Head of Currency Strategy at Brown Brothers Harriman in New York.
Authorities have long exerted tight control over the forex market and bankers said they expect their decisive role to continue for an interim period as the market moves towards normalization.
“It seems that the active role of the state in the foreign exchange market will continue until the interest rate comes to the right place,” said a forex desk trader at one bank.
Erkan is the bank’s fifth chief in four years, underlining the challenge she may face delivering a lasting policy turnaround after Erdogan has all but stamped out the bank’s independence in recent years.
Erdogan, who has called himself an “enemy” of interest rates, has pressed the central bank to deliver stimulus in recent years and has been quick to replace its governor. He has also embraced orthodoxy before, only to quickly double back.
Erkan replaced Sahap Kavcioglu, who spearheaded Erdogan’s rate-cutting drive that set off a historic currency crash in 2021 and sent inflation to a 24-year peak above 85 percent last year.
She was appointed just under a week after Erdogan named Mehmet Simsek, a well-respected and orthodox former finance minister, as minister in charge of the economy.
Markets are now watching to see what other personnel changes will be made in the central bank’s monetary policy committee, regulatory bodies, state banks and the Turkey Wealth Fund.
Simsek is expected to meet the heads of Turkish banks around the end of this week.
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