FX.co ★ Turkish Lira Extends Controlled Weakening

In February, the Turkish lira hit an unprecedented low of 43.5 per USD, as the Central Bank of Turkey continued its controlled devaluation strategy. Markets scrutinized the currency flow projections for the year as the central bank actively managed its foreign exchange reserves. The bank also took steps to encourage domestic investors to increase their lira deposits in an effort to moderate the currency's depreciation, which led to a 20% devaluation against the dollar in the prior year. Concurrently, in its January meeting, the Turkish Central Bank lowered its benchmark policy rate by 10.5 percentage points to 37%, citing a decrease in underlying inflation trends as justification for easing the restrictive monetary policy, despite rising food prices bolstering the overall inflation rate. The latest inflation rate hovered near 31%, significantly surpassing the 27% increase in the national minimum wage for the year, continuing the trend of official inflation figures falling short and diminishing purchasing power.