For the last six months, the Turkish lira (TRY) has been on a downward trend against the United States dollar, particularly intensified in the last month, following a much larger-than-expected interest rate hike by the Turkish central bank backed by President Recep Tayyip Erdoğan.
As a result of this unexpected move, the rate hikes sparked a short-lived rally for the lira, but the Turkish currency has continued to weaken versus the dollar, as the USD/TRY pair rose 3.18% in the last 30 days, on top of the 42.89% gain over the past six months.
At the same time, the current state is at an all-time high (ATH) for the USD/TRY pair, as it rose to 27.49809 – a level never seen before, according to the most recent data retrieved on October 3.
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As things stand, if this pair continues to move upwards, it will target the resistance levels between 27.70 and 27.80, while the decline of the USD/TRY pair will target the support levels concentrated between 27.30 and 26.99.
Effects of rate hikes
As it happens, the Türkiye Cumhuriyet Merkez Bankası (TCMB) delivered a massive rate hike of 750 basis points to 25% in late August, in a surprising turn of events following a protracted period of the government’s unorthodox economics, as Reuters reported on August 24.
Specifically, the increase to 25% from 17.5% followed a fairly modest raise of 2.5% the month before, which came as a slight surprise to experts who had previously expected a 20% hike. According to the central bank, the aim of the move was to ease inflation, which had soared to nearly 48% the month before.
As the central bank officials said at the time:
“Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved.”
Inflation continues to rise
Meanwhile, the above measures are yet to produce concrete results, as Turkey’s annual inflation has surpassed 60% – at the fastest rate this year – amid a worsening economic outlook exaggerated by the oil surge.
Indeed, Turkey is a major importer of energy, and the central bank’s latest estimates for the annual average oil price currently stands at $79.4 – leading to the pace of annual price gains jumping to 61.5% in September, from nearly 59% in August, as Bloomberg reported on October 3.
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