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The Central Bank of Turkey again conducted a currency intervention – in vain

The market seems to be showing Erdogan what he will do with the lira if he lowers rates again on December 16. Only a generous premium in the form of a high percentage can stop these predators from feeding the energy and inspiration in the chart of the Argentine peso. According to its statement, the Central Bank directly intervened by selling the currency.

The lira recovered losses against the dollar after the intervention, rising 0.2% to 13.7660 per dollar as of 13:53 local time, but 15 minutes later, it fell again to 13.85. Judging by such a meager growth, the Central Bank has less and less currency in reserves. Last time during the intervention, the lira won back more than 1 lira to the dollar.

The lira has lost 46% of its value against the dollar this year, hitting a record low of 14.0 last week. Probably, the lira below 14 per dollar crosses the red line in the eyes of the regulator. Earlier on Friday, the Turkish lira approached record lows as concerns about President Tayyip Erdogan’s low-interest-rate policy by a central bank survey showing one of the most significant monthly rises in inflation expectations in history. A survey of market participants conducted by the central bank showed that annual consumer price inflation at the end of the year was 23.85%, compared with the forecast of 19.31% a month earlier.

But Tim Ash of Bluebay Asset Management, an experienced Turkey watcher, said the numbers were a “lagging indicator.” “I would be surprised if inflation at the end of the year was so low.” Moreover, investors are concerned about the recent aggressive easing of monetary policy, in which the central bank has cut its discount rate by 400 basis points since September. As a result, inflation jumped to a three-year high of 21.3% last month.

Erdogan has repeatedly advocated lowering rates, promoting a new economic plan that prioritizes economic growth, production, and exports, despite economists’ widespread criticism of the policy. After a cabinet meeting this week, he said that financial market volatility would eventually stop, blaming rising prices on greed and high import prices.

Data on Friday showed that the unemployment rate fell by 0.2 points in October to 11.2%, but seasonally adjusted labor underutilization increased by one percentage point to 22.8%. In addition, Moody’s rating agency said this week that consumer price inflation in Turkey could exceed 25% in the coming months, and another potential interest rate cut in December will increase risks to their forecasts.

The central bank’s meeting to determine rates will be on December 16. Moody’s also stated that the weakening of the currency has led to an increase in dollarization. However, so far, “confidence in the banking system remains strong with no signs of withdrawal of deposits.” In addition, the latest survey by the central bank showed that economic growth to reach 9.9% this year and 4.1% next year.

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