Lira Soars After Turkey Shocks Markets With Whopping 200bps Rate Hike

Meanwhile, as Bloomberg notes, the recent depreciation of the lira, which has lost more than 8% against the dollar since mid-February, is also putting pressure on Agbal. The currency’s weakness is mostly related to the spike in U.S. Treasury yields, which has triggered a developing-nation currency selloff.

So heading into today, the CBRT head was damned if he did and damned if he didn't: on one hand, the lira was plunging angering Erdogan, so he had to stabilize it... on the other, the only way to do so was by hiking rates, which would anger Erdogan even more.

After taking over in November, Agbal ended a complicated funding structure and hiked the one-week repo rate by 625 basis points, boosting the bank’s credibility among investors. Despite the recent decline, the lira has strengthened around 14% under his watch, as expectations grow that Turkey’s returning to more orthodox monetary policy. He stood pat in the first two meetings of this year, opting for hawkish messages. The governor has pledged to maintain a tight monetary policy stance until he meets his 5% inflation target, no earlier than 2023. It is unclear if, like Powell, Erdogan will have the patience of waiting that long.

As Bloomberg reminds us, the Turkish statistics agency will publish March inflation data on April 5 which should be another doozy.

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