Turkish lira notches more record lows on rate-cut concerns

By Kitco News / October 15, 2021 / www.kitco.com / Article Link

* Dismissed central bankers seen as opposed to latest rate cut

* Central bank survey shows 140 bps of rate cuts expected in 3 months

* Central bank policy meeting Thursday next week

* Lira has weakened 19% this year vs dollar (Updates with fresh record low vs euro)

ISTANBUL, Oct 15 (Reuters) - Turkey's lira touched new lows against the dollar and euro on Friday, hamstrung by worries over more interest rate cuts despite high inflation, after President Tayyip Erdogan dismissed three central bank policymakers.

Two of the three monetary policy committee (MPC) members ousted on Thursday were seen to oppose the bank's 100 basis-point rate cut to 18% last month, and their dismissal clears the way for more policy easing as soon as next week.

A survey by the central bank showed market participants expected the rate to hit 16.6% in three months, representing cuts of 140 basis points, while inflation expectations rose.

The lira lost as much as 0.5% to hit an all-time low of 9.24 against the U.S. currency. It stood at 9.2380 at 0935 GMT and has weakened more than 19% so far this year.

It also touched a record 10.7235 against the euro.

"These frequent replacements of decision-makers is underlining the message that the central bank is not independent and under enormous political pressures," said Selva Demiralp, director of the Koc University-TUSIAD Economic Research Forum and a former U.S. Federal Reserve economist.

She said the lack of credibility made markets nervous because the bank's inflation goal of 5% would likely be harder to achieve and also because any future rate hikes would be less effective.

Analysts viewed the latest central bank personnel changes as fresh evidence of political interference by Erdogan, a self-described enemy of interest rates who frequently calls for monetary stimulus.

The bank's next policy meeting is on Oct. 21.

According to initial results of a Reuters poll, most economists expect a rate cut next week and some may respond to the MPC shakeup by predicting a more aggressive easing.

"We think rate cuts in Turkey are premature at this point, but it has been clear for some time that the president wants the central bank to reduce them further and has the political power to influence this," said Thomas Clarke, portfolio manager at William Blair Investment Management.

Turkey's government separately recorded a September budget deficit of 23.59 billion lira compared to a deficit of 29.67 billion lira a year earlier, improving mainly due to rise in tax income.

The main blue chip Borsa Istanbul BIST100 index was flat while banking index was 1.6% lower. (Additional reporting by Tom Arnold in London; Editing by Toby Chopra)

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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