D.he Turkey announced further steps to normalize the financial sector on Tuesday, which it hopes will stabilize the financial and economic situation. The foreign exchange market did not honor this. The lira, having recovered strongly in the previous weeks after months of tumbling downward, is depreciating again. The process started over the weekend continued Tuesday. While the dollar still cost 7.55 lira on Thursday after the announcement of the key rate hike, now up to 8 lira per dollar had to be paid again at its peak.
Trading in euros was similarly volatile. If it was traded below 9 lira five days ago, up to 9.55 lira was charged. The recent weakness coincides with new measures to combat Covid-19 and tensions in the gas and Libya conflict. On the other hand, the government and the central bank continued their course of normalization and greater transparency. For example, the central bank abolished some interest-rate policy measures in order to ensure more clarity in the toolbox. This category includes the discontinuation of requirements for minimum lending to local banks, which has now been announced by the banking supervisory authority. These are considered to be the reason for the credit boom, which, according to rating agencies, could lead to bad loans.
The elimination helped bank shares on the stock market in the short term. In the long term, it should also help push inflation down from 12 percent towards 5 percent. One of the central bankers reaffirmed the new course of higher interest rates and a more active fight against inflation. This will stabilize the lira and restore citizens’ trust in the currency.
The flight of Turkish investors into foreign exchange and precious metals had recently intensified. In mid-November, the stock climbed to a new record high of $ 225.75 billion. However, investors are still clearly lacking confidence in the government, the central bank and the lira.