Turkish Lira and Erdogan Hope for Policy Redemption at Upcoming Central Bank Meeting Preview

Turkish President Erdogan May Change Economic Policies

 

New Central Bank Chief and Finance Minister

 

Turkey’s President Recep Tayyip Erdogan may change his economic policies as the new Central Bank Chief and Finance Minister begin their roles. The Turkish Central Bank is expected to increase interest rates on Thursday, which could be as high as 1150bps. This would bring the policy rate back up to 20%, which is slightly higher than the 19% policy rate in 2021 before President Erdogan began his policy ‘experiment.’

 

Policy Pivot

 

President Erdogan may change his election promises around maintaining the current economic policy and low-rate environment. The new Finance Minister, Mehmet Simsek, stated that Turkey’s only economic choice is to return to “rational ground and compliance with international norms.” He appointed Hafize Erkan as the first female Central Bank Chief in Turkey. However, some people are concerned about her recent role as Chief Executive of First Republic Bank in the US, which was one of the failed banks during the recent US Banking storm.

 

Central Bank Meeting

 

The Central Bank meeting is expected to bring a policy pivot. Analysts have different views on the rate hike, but any rate hike delivered by the Central Bank is likely to stop the Lira’s slump. The question is whether President Erdogan will allow the Central Bank autonomy to do its job.

 

Technical Outlook and Final Thoughts

 

Volatility is expected to remain high over the coming days, especially if we receive the hawkish forward guidance. USD/TRY remains confined in a tight range of late between the 23.4460 and 23.7100 with today’s decision likely to facilitate a breakout. A hawkish move and policy pivot today could push USD/TRY back toward the psychological 20.000 mark which currently lines up with the 50-day MA.