Türkiye: The pound is falling in anticipation of a decisive decision by the Central Bank

On Thursday, June 22, the crucial decision of the Central Bank of Turkey regarding interest rates will be announced.

With the first light of day, Istanbul’s Grand Bazaar fills with foreign exchange dealers.

With two cell phones in his pockets, sweet hot tea in front of him and a cigarette in hand, someone asks the passing crowd, “Does anyone buy dollars?” “I’ll buy, but only tonight,” exclaims another with the same look and habits, he writes guardian.

“I’m ready to buy dollars at 14:00. Anyone want to buy? 14:00 anyone?” exclaims a third trader among the many who have taken refuge in this shopping center to escape the stranglehold of Turkey’s financial markets.

New fall for the pound

In the three weeks since Recep Tayyip Erdogan’s re-election, the lira has faltered, having fallen about 16% against the dollar following the first round of presidential elections in mid-May, according to ratings agency Fitch.

Türkiye is a country suffering from a deep economic crisis, as indicated by the same text of the British newspaper. The value of the pound has halved two years ago and inflation has officially reached 39.59%, although unofficial estimates put the figure at more than 100%.

What indicates the situation is that, according to economists at Bloomberg, the Turkish authorities have spent $177 billion (£138 billion) propping up the hryvnia since its plunge in December 2021.

Central bank decision

It is worth noting that, immediately after the election, Erdoğan appointed two former Wall Street bankers — Mehmet Şimşek, whom markets have shown confidence in and Hafiz Gay Erkan, Turkey’s “terrible girl” — to run the country’s finances, signaling a possible shift away from the government. From massive government intervention to letting the market determine the fair value of a currency.

This will be clarified on Thursday, June 22, when the crucial decision of the Central Bank of Turkey regarding interest rates will be announced. However, according to analysts, all indicators converge to conclude that the Monetary Committee will announce an increase in the lending rate, after months of keeping it at 8.5%, under extremely high inflation conditions.

Economic analysts even expect that by the end of the year, the central bank’s lending rate will range from 18% to 35%, in order to balance the indicators of the Turkish economy.