The Turkish lira weakened to a record low of 44 per USD in March, as the Central Bank of Turkey was forced to intervene in the foreign exchange market to preserve a controlled pace of depreciation amid the outbreak of war in the Middle East. Traders reported that the central bank sold more than $8 billion in foreign currency since the start of the month to stem lira losses, as a global shift away from riskier assets propelled the dollar higher.
Market participants continued to sell lira despite expectations that new inflationary pressures stemming from the regional conflict—particularly through surging energy prices—would push the central bank to suspend its rate-cutting cycle. In addition, the TCMB raised its overnight reference rate by 300 basis points to nearly 40% in an effort to curb a steeper lira selloff. Confidence that the easing cycle would be paused was further supported by a rebound in the headline inflation rate in February to 31.5%, its first increase since September.
