As the policies of those in charge of the Turkish economy continues… The Turkish currency still on steady decline


The Turkish lira has recently witnessed a state of stability and stability in a downward trend, as it has become normal for its exchange rate this month to be lower than the previous one, and so on, to the point that it has attracted the attention of many investors and traders.

The currency has fallen more than 35% this year, the largest decline in emerging markets after the Argentine peso.

The unusual persistence of the lira’s depreciation is attracting the interest of investors who borrow where interest rates are low and seek to invest money in their businesses where returns are higher.

So far this year, the chronic weakness of the Turkish lira and one of the world’s fastest inflation rates have led to the world’s worst returns.

While the currency is still steadily losing value, maintaining record low levels almost every day over the past three months, its daily losses have been contained within a very narrow range, averaging just over 0.1%.

As a result, one-month implied volatility, a measure of a currency’s expected price fluctuations, fell below 10% this month to near its lowest level this year.

This low volatility, when combined with high yields on Turkish bonds, creates an attractive proposition for trades.

According to experts, the Turkish currency is showing “creeping peg-like behavior”, as the government’s policy of allowing only gradual shifts in the currency, which is a shift in dynamics, with short-term returns now outpacing recent changes in parity.

By this, investors can now gain more from short-term Turkish bonds than they will lose from the depreciation of the currency.

Meanwhile, cumulative monthly declines in the currency have been less than monthly inflation since August, meaning the Turkish lira is appreciating in real terms.

While the government has not indicated that attracting foreign capital through carry trades is part of its policy, Finance Minister Mehmet Şimşek, a former investment banker, said earlier this month that ensuring the real appreciation of the currency Its part of its policy.

Strategists at Barclays Bank expect the depreciation of the Turkish lira continues at a pace that leads to the stability of the real effective exchange rate of the currency, which represents inflation differences between the country and its major trading partners.

Barclays expects If the currency falls more than investors stand to gain, making the carry trade unattractive.

In contrast, strategists at Goldman Sachs believe, “The Turkish lira could outperform the high risk premium next year as real interest rates turn positive”.

Carry deals on Turkish assets that were once a favorite of emerging market investors were abandoned years ago, after officials in Ankara imposed a series of measures aimed at discouraging short selling of the lira.

A team of economic officials more suited to the global market mood was appointed, led by Şimşek.

The Central Bank Governor Hafize Gaye Erkan, also a former investment banker, was appointed by President Recep Tayyip Erdogan, after the elections held last May.

They have gradually eliminated previous regulations in an attempt to regain investor confidence.

However, among the obstacles to attracting money to Türkiye again are the low level of its foreign exchange reserves and stable inflation, which may force further increases in interest rates.

However, the biggest concern among investors is more than a decade of erratic policy making.

With currency market volumes low by historical standards, state-run lenders have become the main suppliers of foreign currency to Türkiye’s $900 billion economy, effectively giving them the power to set interest rates.

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