The Turkish lira weakened to a new record low of 47.2 per USD in July, as the Central Bank of Turkey (TCMB) continued its policy of controlled, gradual depreciation while intervening in foreign exchange markets to prevent a sharper slide. In line with market expectations, the TCMB left its key policy rate unchanged for a fourth consecutive meeting in July.
The central bank noted that leading indicators already point to a rise in underlying inflation this month, driven by a renewed surge in energy prices following the escalation of the war in the Middle East. At the same time, the bank warned that domestic demand appears to be slowing in response to these developments.
To preserve the measured pace of depreciation, the TCMB has continued to sell lira in the open market. Additional support for the currency has come from policymakers’ signals that a near-term return to one-week repo auctions is unlikely. These auctions have been suspended since March, effectively forcing financial institutions to rely on the costlier overnight funding rate.
