Currency market. The disaster of the Turkish lyre

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Ten years ago, you had to pay almost 2 zlotys for a lira, and four years ago – one zloty. Today it costs less than 33 cents. The zloty is extremely weak at the moment, but it has a unique opportunity to show strength against the Turkish currency. The lira looks bad compared to the US dollar. Even at the beginning of September, it was paid for less than 8.30 lira, and now it is 12.70. Yesterday, at the peak of trading, the dollar was over 13.30 lira. Since the beginning of the year, the American currency has appreciated against the lira by around 80%.

Inflation in Turkey is very high – 20%. President Erdogan has an extremely original view that the dynamics of price growth can be curbed by interest rate cuts, and he calls the entire operation “the war for economic independence”. The victims of the war are, above all, high-ranking officials of the Turkish central bank.

Here you can check currency quotations online on Biznes

In March, the president dismissed the governor of the Bank of Turkey, who had carried out a major interest rate hike two days earlier. A few weeks ago, the same fate befell another three senior central bank officials. Recep Erdogan dismissed them by decree because they did not want to agree to further cuts in interest rates.

The fate of the lyre is also closely related to “pure politics”. In late October, another weakening of the Turkish currency came just after President Erdogan instructed the Ministry of Diplomacy to recognize 10 Western ambassadors as personae non gratae. The “black list” includes, inter alia, representatives of the United States, France and Germany. The ambassadors exposed themselves to the Turkish president with a joint appeal to release the opposition activist and philanthropist Osman Kavala, who has been imprisoned for 4 years without a sentence or an order from a European court.

The interest rate cuts forced by Recep Erdogan were justified in the official statements of the Bank of Turkey in a way reminiscent of statements issued by some other central banks – including our NBP, which until recently saw no need to tighten monetary policy.

“The rise in inflation will be largely temporary and will subside as consumer demand normalizes, tensions in supply chains are eased, and low base effects are mitigated. Therefore, central banks in advanced economies continue to be expansive in monetary policy and implement asset purchase programs,” he wrote. Bank of Turkey executives immediately after deciding to lower interest rates with consumer inflation four times above the inflation target.

Today, many analysts are convinced that even over the Bosphorus, the view of the need to tighten monetary policy will prevail, because only in this way will it be possible to limit inflation and prevent further depreciation of the national currency.

Societe Generale predicts that the Bank of Turkey will be forced to raise interest rates from the current 15%. up to 19 percent in the first quarter of 2022. Goldman Sachs is of a similar opinion and expects Turkish rates to be 20% in the second quarter of next year.

The disaster of the Turkish lira explains a lot when we try to define the causes of today’s weakness of the zloty. “Clean politics” is not without significance. World financial investors a few months ago assumed that the Polish economy would get a huge injection of money from the EU Reconstruction Fund. Today, the prevailing view is that Warsaw’s dispute with the European Commission over the rule of law may cut us off from these measures. The zloty is also harmed by the tension on the Polish-Belarusian border and speculation that Russia may aggravate its military conflict with Ukraine.

Investors are also trying to predict what the next moves in the monetary policy will be made by the NBP after the interest rate increases in October and November. Łukasz Hardt, a member of the Monetary Policy Council, has just announced that “interest rate hikes must be continued”. He also recalled his Twitter entries from the end of October, in which he pointed out that “the exchange rate influences consumption prices in Poland much more than in the euro area”.

In his opinion, this is due to the high import intensity of our production and more than twice the share of imports in consumption in Poland than in the countries of the common currency. The answer to the question of how many more MPC members share the point of view of Łukasz Hardt may be crucial in forecasting the zloty exchange rate.

Jacek Brzeski


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About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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