Turkish Lira Strategy, President Erdogan vs CBRT ~Strategy of October 25~
Turkish Lira,to discern the direction forward!!
・If rate cuts are madeTRY selling
・If rate hikes are madeTRY buying
Turkey's monetary policy announced today. The contents reveal the domestic power balance in Turkey.
・President Erdogan who wants to cut rates
・CBRT (Central Bank of Turkey) who wants to raise rates
The market expectation this time is to hold rates.
If President Erdogan's influence grows stronger, a rate cut will occur.
If President Erdogan's influence weakens, a rate hikes will occur.
That is all.
The current Turkish situation is,President Erdogan's dictatorship. Erdogan's authoritarian rule extends even to the CBRT (Central Bank of Turkey) and he influences monetary policy. Moreover, he discusses unconventional ideas that are hard to imagine normally.
If a rate cut is made, price inflation would settle. Normally, policy rates are raised to curb inflation. Consequently, the CBRT could not raise rates and could not stop inflation. In addition, together with a strong dollar, the Turkish lira continued to be sold, causing a Turkish lira shock.
After the shock, they did raise rates, but it was to no avail. The only thing that could be done was to stop the lira's decline. Therefore, ideally another round of rate hikes would be desirable, butErdogan is demanding cuts.If Erdogan's power continues to grow, rate cuts could even occur!?
However, just recently when the Turkish lira was sold off, information surfaced thatthe far-right party allied with President Erdogan announced breaking their alliance. There are higher chances of Turkish politics becoming unstable and the lira being sold; however,if the CBRT can break free from the president's influence and raise rates, the market will respond positively. I think this would lead to a rebound in the Turkish lira.
Therefore, this monetary policy announcement will be a policy statement to gauge the domestic power balance in Turkey, and will be watched closely.
USD/TRY daily chart
