There has been no let up for the Turkish lira today and all eyes are turning to the central bank’s interest rate decision tomorrow. Policymakers’ increased tolerance to falls in the lira as well as pressure from President Erdogan mean that an interest rate cut of 100bp or so still seems likely but a much larger reduction would clearly send Turkish financial markets into a tailspin. Even a hold (or a rate hike) may only provide short-term relief for the currency as much will then depend on the president’s reaction and whether he decides to part ways with another central bank governor.
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