Turkish Lira Declines As Inflation Rate Surges 24.5%

Turkish Lira Declines As Inflation Rate Surges 24.5%
October 5, 2018

 

Turkey’s currency depreciated above six-to-a-dollar, compared with just below four-to-a-dollar a year ago, after data revealed that inflation has gone up for the sixth successive month to its highest reading in 15 years as a worsening economic crisis continues to keep the price of goods under pressure. The Turkish lira has given up nearly 40% of its value in 2018 since President Recep Tayyip Erdogan took his seat in office.

 

Turkish inflation and issues with the US

The ongoing tussle between Ankara and Washington over the imprisonment of Andrew Brunson, an American pastor jailed in 2016 on unproven charges of terrorism and undercover activities, has fueled economic issues in the country.

After NATO allies’ attempts to free Brunson were unsuccessful, the White House administration doubled the prevailing import tariffs on Turkish steel and aluminum, while placing sanctions on bureaucrats. Brunson’s lawyer stated that he has petitioned for release from house arrest, according to a Reuters report. The next court hearing is scheduled for October the 12th. The sanctions triggered a plunge of the Turkish lira to a decade low level.

The central bank of the world’s 17th biggest economy reported a 24.5% increase in the inflation rate in September, in comparison to a year ago. Economists had anticipated an increase of 21.1%. A month earlier, inflation was rising at 18%.

Clashes between the central bank and government have battered the lira this year. In early September, the central bank hiked borrowing costs by 625 basis points to 24%, despite criticism by Erdogan. The president supports unorthodox ideas such as slashing rates to bring down inflation. Additionally, he has often tried to influence monetary policy decisions, and because of these reasons, the Turkish Lira is one of the worst-performing currencies of the year.

Berat Albayrak, Turkey’s treasury and finance minister and Erdogan’s son-in-law, continues to blame the rising inflation on external factors. He has also opined that the issue could abate in November. While speaking to a local news channel, Berat Albayrak said: “The current trend will be broken in October.”

Despite a slowdown in economic activity and strongly worded statements by Erdogan, analysts believe that the central bank will continue raising interest rates.

Inan Demir, a senior emerging markets economist at Nomura, said: “We acknowledge these are strong arguments, but we think they are not enough to refute the case for a hike.”

Even the recent rate hike has done little to strengthen the Lira and it is, therefore, expected to remain weak in the months ahead.

The greenback, on the contrary, has turned extremely bullish against the currencies of developed and emerging economies. With the Fed Chair Powell asserting more rate hikes in the months to come, the greenback is only expected to strengthen further.

Technically, the USDTRY pair is moving within an ascending channel as shown in the image below. The currency pair has also received firm support at 6.14 levels. The next resistance is expected only at 6.30 levels, and as a result, we can expect the USDTRY pair to remain bearish in the short-term.

try - technical analysis - 5th October 2018

 

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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