The Pound Sterling to Turkish Lira (GBP/TRY) exchange rate is forecast to strengthen to a new record high as economists increased speculation that the Turkish central bank will cut interest rates.
As Monday’s European session got under way, the Lira tumbled to a new record low against the US Dollar and slipped by more than 1% against the Euro and Pound Sterling. The GBP/TRY exchange rate hit a session high of 3.804.
The cause of the Lira’s sharp declines is a loss of confidence in the Turkish central bank. At the end of January, the central bank cut the benchmark one-week repo rate from 8.25% to 7.75%, a move that resumed an easing policy that had been implemented as speculation over a US Federal Reserve interest rate rise had disrupted the markets.
The central bank came under fire from members of the Turkish government who said that the bank was not being aggressive enough in slashing interest rates and in supporting the battered Turkish Lira.
‘Sentiment is very poor towards Turkey. The Lira has been identified as the most sensitive emerging market currency to swings in investors’ sentiment,’ said Benoit Anne, the head of emerging market strategy at Societe Generale.
Erdogan Warns over Central Banks Independence
Confidence over the Turkish central bank was further knocked as Tukey’s President Tayyip Erdogan warned that the bank could lose its independence if it does not take action soon.
Erdogan wants the central bank to aggressively slash interest rates and suggested in a speech made earlier in the month that he wonders whether the bank would be more affective if the bank was no longer independent.
On Sunday, Erdogan told reporters that the central bank “will be held to account” if there are fluctuations in the Lira. “I am not in a position to comment on the US Dollar’s rise against the lira, but, if the lira stability is hurt, then the central bank will have to explain why they failed to manage this. Some people are trying to hold Turkey back with interest rates. Unfortunately, this is the result of an independent central bank.”
The Lira continued to fall despite the release of better than forecast Industrial production data.
The Pound Sterling to Turkish Lira exchange rate was trading in the region of 3.791
