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towards [the CBRT’s next policy meeting on] June 7. What the president says is that interest rates should be reduced as a target.”
The news agency quoted Dietmar Hornung, an associate managing director and head of European Sovereigns at ratings agency Moody’s, as saying at a conference in London: “Cen- tralisation of power and interference in the monetary policy
is a concern to us.”
Forex regime changes denied
On May 14, the Turkish Treasury denied media reports that it was planning foreign-exchange regime changes, even though parliament was preparing to empower authorities to demand access to foreign currency transaction data. The Treasury stated that submitted draft legislation to tighten protection of the TRY signalled a step forward for "a more liberal exchange regime".
Lawmakers who have started debating the bill dropped an article making reference to the “exchange regime”, and can- celled a proposed amendment that would allow authorities to impose fines for submitting misleading information, except in cases of state security, trade secrets or family privacy, Bloomberg reported.
On May 8, Erdogan said the government has projects in motion designed to “reverse the assaults on the economy that are fully carried out through the exchange rates”. Two months earlier, he launched an attack on credit rating agencies two days after Moody’s Investor Service cut Turkey further into junk after concluding that its government seems focused on
short-term measures, undermining effective monetary policy and economic reform. Erdogan claimed the rating agencies were preoccupied with trying to drive Turkey into a corner and financial markets should not take them seriously. Banks, he said must not bend to the will of the international “interest rates lobby”.
Global strengthening in USD and rising yields on the US gov- ernment bonds continued to weigh on emerging currencies on May 15, but better inflation data has lowered pressure on the Fed to raise interest rates.
Markets have long been worried over whether the central bank has what it takes amid political pressure to fight Turkey’s stub- born double-digit inflation. The early elections called for June 24 have generated added uncertainty for market players.
The lengthy list of reasons for the TRY’s sharp decline this year include the appreciation of the dollar, with the 10-year US Treasury yield breaking above the psychologically important level of 3%; S&P’s surprise move on May 1 to cut Turkey fur- ther into junk on the growing risk of its overheating economy experiencing a hard landing; the ballooning current account deficit; pre-election fiscal expansionary policies; latest PMI data on manufacturing pointing to contraction and signs
of corporate debt difficulties that could leave the country’s banks exposed to burdensome problem loans.
Geopolitical risks, rising oil prices and the ongoing emergency rule in the country, which has lasted 22 months to date and will apply during the elections, are also negative when it comes to the lira’s performance.
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