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Turkey's economy is in the doldrums after July coup. The economy suffered a sharp hit, Q3 GDP fell by 2.7 percent q/q and the PMI tanked. Major credit rating agencies downgraded Turkey to junk during Q3 2016, which has widened the CDS-spread and raised the cost of capital.
Downward pressure on Turkey's currency has been intensified after the failed coup attempt and emerging markets rout driven by a surprise victory of Donald Trump in U.S. elections. Lira lost one fifth of its value against the dollar last year. The lira tumbled 6 percent per greenback and 8 percent against the euro since the beginning of January.
Turkey’s central bank Tuesday continued its practice of unorthodox policy measures in attempts to stabilize the currency by raising overnight lending rates for banks but keeping its benchmark policy rate steady. Economists had expected the late liquidity window lending rate would be increased by between 0.75 percentage points and 3 percentage points
Turkish lira was sold off immediately after the surprise rate announcement. Policy decision didn’t satisfy growing negative investor perception that sees Turkey as a deepening risk due to continuing political instability and an increasingly grim economic outlook.
Turkish President Tayyip Erdogan said he favoured the use of a single central bank policy rate and wanted to do away with the interest rate corridor which the bank uses to set policy, newspapers reported on Friday.
"Only a permanently positive and high real interest rate, which markets can credibly believe in, will work. Unless the USD were to retreat entirely in coming months, Turkish policymakers will increasingly face this reality." said Commerzbank in a report.
USD/TRY was up 1.27 percent on the day, trading at 3.8811 at the time of writing. We see no signs of reversal, uptrend largely intact. FxWirePro's Hourly USD Spot Index was at 48.5686(Neutral) at 0950 GMT. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex.
