Turkey is taking a step towards a currency crisis. Lira at opening -17%

The currency market reacted with the sharp sell-off of the Turkish lira to the dismissal of the president of the Bank of Turkey. Turkey is taking another step towards a currency crisis, and the zloty may backfire.

Lira discounted at opening by -17%

On Sunday night, the USD / TRY rate soared to 8,4748 from 7,2086, ie by as much as 17,56 percent, after Turkish President Racep Erdogan dismissed the president of the local central bank. This happened three days after the Bank of Turkey raised its main interest rate from 3%. up to 17 percent (forecast: 19%) in order to stop the rampant inflation (18% y / y in February) and stop the outflow of capital.

USD / TRY daily chart. Source: Tickmill

Although in the following hours the USD / TRY exchange rate moved back to 7,92, going down to 7,6861 at some point, this does not end the topic. The lack of even the fake independence of the central bank in Turkey, rampant inflation and economic problems make the country take another step towards a currency crisis. Especially that it is likely that the new president of the central bank will withdraw the last interest rate hike already in April, which will make the situation even worse. The result will be a further sell-off of the lira with the prospect of USD / TRY rising above 9,00. Then the bank will have no choice but to raise rates sharply.

The situation around the lira may also hit the zloty with a slight ricochet. Especially when it worsened significantly and the funds began to evacuate en masse from our region.