Turkish Lira Try Down After Surprise Rate Hike

 Turkish Lira Try Down After Surprise Rate Hike

Turkish Lira (TRY) Down By 2.8% After Surprise Rate Hike

On Thursday, the central bank of Turkey announced a rather large rate hike that goes against Erdogan's policy of low-interest rates. It appears that markets didn't like the surprise from the central bank, as the Turkish Lira lost 2.8% of its value during Friday's trading session.

According to experts, the rate hike made by the central bank was below the market expectations. This caused the Turkish Lira (TRY) to lose its value against major currencies.

When checked last time, TRY was trading near 25.2015 after losing 1.3% of its value from Thursday's close. If we look at the TRY (Turkish Lira) trend for this year, it is already down by 27% against the US Dollar.

Turkey's Central Bank Announced 650 bps Rate Hike

On Thursday, Turkey's central bank raised the interest rate by 650 bps. This means the official interest rate in Turkey now stands at 15%, which is a high rate no matter how we look at it!

According to Turkey's central bank, more rate hikes can also happen, which points towards monetary tightening in the country.

After Erdogan's recent victory in elections, he appointed Hafize Gaye Erkan as the new governor of Turkey's central bank. And it appears that the new governor is going on a different path than the one announced by Erdogan.

If we look at the last few years, Turkey has been going through monetary easing with reductions to the repo rate. According to experts, this unorthodox policy of Turkey led to the problem of soaring inflation.

The economists were expecting the interest rate to reach 21% during Thursday's session, but it appears that the central bank has decided to stick with 15% for now. In addition, the recent moves suggest that the new governor will have limited room to exercise his policy under the watch of Erdogan.

In theory, the recent move by the central bank should have boosted the TRY. But we are seeing the exact opposite of this which tells us that markets can behave unexpectedly.

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