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Turkish Lira Gains for The Fourth Day

Turkey’s lira rose for the fourth day after the government announced new currency-stabilization measures on Monday.

The lira was up 3.5 percent to 11.61 per dollar. The currency has recovered all of its losses from December when concerns about loose monetary policy and rising inflation drove it to a record low of 18.36 per dollar.

The government has proposed a plan to compensate holders of lira deposits for any losses incurred if the currency’s future declines exceed the central bank’s benchmark interest rate of 14 percent. Since September, the central bank has cut interest rates by five percentage points on orders from President Recep Tayyip Erdogan. He claims that Islamic principles require his government to lower interest rates. The bank has also intervened in the foreign exchange markets several times this month to keep the lira stable. This left its foreign currency reserves, net of liabilities, severely depleted.

Fitch Ratings said on Wednesday that macroeconomic stability risks remained elevated and were negative for Turkish banks as capital ratios deteriorated. According to Fitch, the scope and impact of the new government measures are unknown.

Against Dollar

Mehmet Muş stated that companies should reflect lira gains against foreign currencies in their prices. He noted that the government would not turn a blind eye to opportunists. Due to significant refinancing requirements and deposit dollarisation, Turkish banks are vulnerable to exchange rate volatility. Despite this week’s gains, the lira has lost more than 35% of its value against the dollar this year.

In Turkey, consumer price inflation reached 21.3 percent in November. Hence, economists predict that the rate will rise to 25 percent or higher this month. The annual rate of producer price inflation is 54.6 percent. In November alone, producer prices increased by 9.99 percent.

Dollar

TODAY, the US Dollar (USD) is under pressure as a bullish market sentiment favors riskier currencies. This morning, US Treasury bond yields fell, putting USD bulls on the defensive: Stock futures in the United States are trading flat.

Reports now suggest that current vaccines may be more effective than previously thought in combating the Omicron variant, encouraging risk-on trading. Researchers in the United Kingdom examined the potential impact of a COVID booster shot against the variant. They concluded that it could provide around 85 percent protection from severe illness.

Furthermore, the UK Health Security Agency (UKHSA) announced that Omicron symptoms are typically milder than those associated with the Delta variant. Despite a mixed bag of data this morning, the Pound (GBP) is trading higher against the majority of its peers today.

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