FX.co ★ Turkish Lira Extends Controlled Weakening

In early October, the Turkish lira continued its gradual weakening trend, reaching an all-time low of 41.6 per USD. This occurred despite a slowdown in the US dollar's strengthening. The Turkish central bank consistently intervened in the foreign exchange markets, aiming to manage Turkey's demand for hard currency. Last month, the central bank reduced its reference interest rate by 250 basis points to 40.5%, furthering its easing cycle, which began after reaching a peak of 50%, projected to extend into late 2024. Policymakers chose to maintain this easing strategy in spite of the pressure on foreign exchange rates, leveraging the sale of hard currency reserves and implementing capital controls to prevent the lira from dropping further. Potential triggers for further currency devaluation were averted when a Turkish court delayed its ruling on the leadership of the main opposition, the Republican People’s Party. Concurrently, inflation marked its first rise in a year in September, ticking up to 33.3%, thus halting the country's disinflation trend and prompting the Turkish Central Bank (TCMB) to consider higher interest rates.