USD/TRY likely to rise well above 7.00 mark again over course of next year, says Commerzbank

The USD/TRY currency pair is expected to rise well above the 7.00 mark again over the course of next year, according to the latest research note from Commerzbank. The Turkish central bank was able to implement a rate step to 24 percent that was urgently required to control inflation – against the publically announced will of President Recep Tayyip Erdogan.

Even if it is to be believed that without Erdogan’s secret approval this step would not have been possible (and that his public comments were simply a PR measure) the central bankers ostensibly created the impression of independence. But that is not sufficient for true independence. Erdogan added to his former remarks on Friday and suggested that if interest rates became too high the central bank’s independence would be limited.

In this context there is a need to realise: even the dramatic rate step taken last week will not be sufficient to suppress inflation on a sustainable basis. It will all depend on whether the central bank will be able to implement its announcement of further key rate hikes in the future, the reported added.

The work of the central bankers is made more difficult by the fact that Erdogan is undermining any confidence in their work. That means inflation expectations do not fall sufficiently and the effect of the (current and future) rate hikes is being watered down.