USD/TRY prints a new YTD high and advances firmly towards 15.00 ahead of the CBRT

• The Turkish lira extends its slide as analysts prepare for another 100 bps rate cut on Thursday.
• CBRT’s current interest rate lies at 14%, as Turkey’s inflation rises by 20%.
• Turkey’s lira value has dropped almost half of its value since the beginning of 2021.

At the time of writing, as Wall Street opens, the USD/TRY prints a new year-to-date high at 14.8157. The market sentiment is mixed ahead of the Federal Reserve monetary policy decision. That, alongside unorthodox economic policies of Turkish President Recep Tayyip Erdoğan, keeps the lira at the risk of continuing its free fall amid the expectations of a 100 basis point rate cut by the CBRT that would leave rates at 13.00% by the end of the year.

Since the last month, the Turkish lira shed its value almost 30% -- half of its value in a year--  as policymakers linked to President Erdogan keeps slashing borrowing costs, despite soaring inflation levels, at 20%.

Turkey’s President Recep Tayyip Erdogan self-declares an “economic war of independence,” defying conventional economics by tackling inflations through a reduction of interest rates.

In the meantime, central banks worldwide are cutting their pandemic stimulus and preparing to raise rates, aiming to combat elevated prices. Furthermore, last week, the Standard & Poor’s rating agency switched Turkey’s credit outlook to negative. 

The lira has shed half its value since the start of the year -- and 30 percent in the last month alone -- as policymakers bow to President Recep Tayyip Erdogan’s wishes to bring down borrowing costs despite soaring inflation.

Erdogan has launched a self-declared “economic war of independence” that defies conventional market economics by fighting inflation by reducing borrowing costs.

On Thursday, the Turkish central bank monetary policy would host its last monetary policy meeting of the year. Analysts at Credit Suisses expect a rate cut of 100 basis points. They said, “We think the lira will remain subject to depreciation pressure if the central bank cuts the policy rate by 100bps tomorrow, even though that would be in line with the consensus forecast.”