Summary:

  • Turkish Lira falls to record lows against USD and Euro
  • USDTRY above 4.10; EURTRY near 5.10
  • Erdogan stands by unorthodox monetary policy

The Turkish Lira has suffered in recent years and despite appearing relatively cheap for some time now it has continued to decline, with further losses of more than 1% seen today. The Turkish president Recep Tayyip Erdogan has played a crucial role in the depreciation as he has pursued an unorthodox monetary policy which has seen interest rates lowered despite double-digit inflation.

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 The USDTRY pair has rallied almost 10% since early March to move to a new all-time high above the 4.00 handle. Source: xStation

Speaking in Ankara yesterday, Erdogan seemed to double down on his stance, fuelling fears that he will keep chasing growth despite the plunging currency. During the speech in which he unveiled a $34B investment package Mr Erdogan repeated a demand for lower interest rates and defied calls from economists that Turkish growth needs to cool off.

 “How will there be investments if you do not bring down interest rates? We call this an investment-based incentive system,” Erdogan said. Turkish gross domestic product grew at 7.4 per cent in 2017, beating all expectations as the government ploughed money into incentives aimed at reversing a sharp economic contraction that followed the attempted coup in July 2016. With elections on the horizon, Mr Erdogan has made clear that his priority is growth with the official GDP growth target for 2018 at 5.5 per cent and he appears willing to risk a further slide in the Lira to meet this. 

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 EURTRY hit a new all-time high today, with the pair higher by approximately a third in the past 12 months. Source: xStation

Both the EURTRY and USDTRY have hit all-time highs today as the Lira continues to slide almost unabated. The EURTRY has surged higher so far this week and the cross now trades around 5.10 at a new record peak. Around this time last year the French election outcome saw the Euro set off on a strong rally and the pair has risen an incredible 33% since April 2017.