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USD/TRY Eyes Stability Amid Major Policy Shift

Poster of Turkish Prime Minister Recep Tayyip Erdogan and Turkish flag on a building in Bursa,Turkey.20 May 2018

USD/TRY exchange rate has seen a massive surge since last month’s Turkish elections. Just in the last 3 weeks, Turkish Lira has depreciated more than 20% against the greenback. Recent reports suggest that the new Erdogan government is set to hike interest rates very swiftly in a major U-turn in its policy.

The Turkish Lira has been in a tailspin for the past few years, and there are multiple reasons behind its weakness. The situation has significantly impacted the cost of living in the country, making things very tough for the working class. Analysts consider the unorthodox policies of the Erdogan regime to be responsible for this downfall.

Turkish Lira To Get Boost From Rate Hikes Soon

According to the most recent Turkish Lira news, after winning the election, the US banker Hafize Gaye Erkan has been appointed as the new chief of the Central Bank of the Republic of Türkiye. In a major policy shift, the Erdogan government is expected to start raising interest rates which currently stand at 8.5%.

As per JPMorgan analysts, the June 22 MPC meeting may increase the interest rates to 25% in a single hike. Analysts at Deutsche Bank also have similar expectations with the belief that a similar hike could be achieved via a one-off hike to 25% or two consecutive hikes in June & July.

USD/TRY May Not Recover To Its Previous Levels

Due to the prevailing economic uncertainty and record inflation in the country, USD/TRY pair is expected to keep facing headwinds in the coming weeks. The highly unorthodox approach by the current government has been the biggest factor behind the downfall of its national currency. The reelection of Recep Tayyip Erdoğan is being seen as a continuation of those policies.

JPMorgan analysts believe that a USD/TRY forecast of 30 is very much achievable in 2023. The dollar strength (DXY) index will be another factor affecting the exchange rate. If the dollar keeps gaining strength and Turkish Lira keeps facing headwinds from sudden decreases in rate hikes, then the company may head toward hyperinflation.

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USD To Turkish Lira Exchange Rate