07.02.2024 – Sometimes it simply pays to be patient: we have been following events in Turkey for months. We have always criticised the economic and monetary policy there and sometimes called for a zero target for the lira. Because the crazy monetary policy capers in this country simply change little or nothing. Now a new farce has started with the new change at the head of the central bank.
Making money can sometimes be so easy: buy a put on the Turkish lira, sit back, eat popcorn and enjoy the show. Here is the weekly chart of USDTRY.
Around three decades ago, the lira was almost one-to-one with the dollar. But our chart doesn’t go back that far. Back then, Turkey was a reliable ally of the West and the values of Kemal Atatürk still counted. In the meantime, we see Islamism, rapprochement with Russia and Iran, war in Syria, threats against neighbouring Greece and Cyprus over gas reserves in the Mediterranean and the ongoing civil war against the Kurds. The armament is financed by firing up the digital printing press. International investors are shunning the state.
Yet another change
And these are the latest developments: Last Friday, the head of the central bank, Hafize Gaye Erkan, resigned unexpectedly after just eight months due to accusations of nepotism. The 44-year-old was seen as a hope for lira bulls, as she had raised the key interest rate from 8.5 per cent to 45.0 per cent. With an inflation rate of 65 per cent, this is still too low. But at least she stood up to her president – he is the only person in the world who believes that low interest rates strengthen a currency.
The daily newspaper “Sözcü”, which is critical of the government, had reported that Erkan’s father had illegally interfered in personnel decisions. According to further press reports, the father was provided with an office, a company car and bodyguards by the central bank. Erkan had also incurred the wrath of the Sultan. In January, she told the newspaper “Hürriyet” that she had moved back in with her parents because she had been unable to find an affordable flat in Istanbul due to the high rents.
Waiting for the turnaround
The previous deputy Fatih Karahan has now been appointed director. This could give hope, as the financial expert has already worked at the Federal Reserve Bank in New York. The new man immediately declared: “We are endeavouring to support the process of declining inflation by restoring budgetary discipline and at the same time implementing structural reforms.” Sounds good. But we are sceptical that it will last long.
Our conclusion: We still see little hope for the lira. And assume a currency reform or the introduction of the dollar or euro as the national currency. Unless the new head of the central bank prevails against his president, which seems illusory. The lira still has plenty of room to fall and could reach 100, just like the Russian rouble. Interim attacks by the central bank against shorties by radically raising the interest rate for overnight lending or through lira purchases are otherwise always possible. We will continue to keep an eye on events for you and wish you successful trades and investments!
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