The Central Bank of the Republic of Turkey, led by Hafize Gaye Erkan, held its first monetary policy meeting yesterday. After the CBRT increased interest rates for the first time in 27 months, the dollar rate moved upwards. The Central Bank increased the policy rate from 8.50% by 650 bps to 15.00% the other day.
After the Presidential 2nd round election, the new economy management took over the dollar rate at the level of 20.00. Between May 29 and June 9, the US Dollar appreciated by 18% against TL. After the rise, the foreign exchange market was once again dominated by stagnation.
However, with the end of the first meeting of the Central Bank, the Dollar/TRY parity, which has been stuck in the range of 23.40-23.60 for about 10 days, continued its upward movement. The parity, which has been active since June 22, 14.00, when the interest rate decision was announced, saw the level of 25.46 in the morning today. However, as of now, the exchange rate is looking for a balance around 25.20.
Will Interest Rates Continue to Increase?
The new CBRT administration, which changed its monetary policy after a long time, is more sensitive to inflation. Although the 20% rate increase expectation at the first meeting was not met, the authorities emphasized the 5% inflation target in the medium term. The Central Bank stated that monetary tightening will continue until a visible improvement in inflation is achieved. This statement means that the rate hike will continue in the coming period.
Fair Value of Dollar Currency
The decisions taken by the former economy administration, which has been trying to keep the foreign exchange under control for about a year, continue to be a matter of debate. In addition to the low interest policy, financial circles who think that the Turkish Lira is overvalued in the face of inflation have expressed their criticism for a long time on this issue.
The new economy management, on the other hand, is closer to the policies implemented in the world. Şimşek management wants to follow a predictable and sustainable path in the fight against inflation.
Foreign institutions, which shared their analysis in the past weeks, determined the fair value of the Dollar/TL parity in the range of 25-27. Export business people also demand a similar exchange rate to compete.
However, an exchange policy that is completely free from interference can lead to other problems. The upward movements in the USD/TL parity significantly increase the cost of Currency Protected Deposits to the treasury. According to the latest data released by the BRSA, there are 2 trillion 628 billion TL in KKM.
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