Why did this happen?

Please make sure your browser supports JavaScript and cookies and that you are not blocking them from loading. For more information you can review our Terms of Service and Cookie Policy.</s>The Turkish lira swiftly recovered against the dollar and euro late Wednesday, after news of the Central Bank's (CBRT) emergency meeting.

The emergency meeting made crucial decisions to curb the value of the currencies against the lira. The bank left one-week repo, overnight lending and overnight borrowing rates unchanged at 8.0, 9.25 and 7.25 percent, respectively.

The bank also raised late liquidity window rate to 16.5 percent from the previous 13.5.

After the steps taken by the officials, the lira recovered to 4.55 against U.S. dollar and 5.33 against euro after the day's record lows of 4.92 and 5.74, respectively.

The dollar and the euro have recently seen consecutive record highs against the Turkish lira.</s>Update: moments after warning it had held an emergency meeting, the central bank announced it raised the Late Liquidity Window rate to 16.5% from 13.5%

The full statement is below:

The Monetary Policy Committee (the Committee) has decided to set the short term interest rates at the following levels: a) Overnight Interest Rates: Marginal Funding Rate has been kept at 9.25 percent and borrowing rate has been kept at 7.25 percent, b) One-week repo rate has been kept at 8 percent, c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0 percent, while lending rate has been increased from 13.5 percent to 16.5 percent. Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior. Accordingly, the Committee decided to implement a strong monetary tightening to support price stability. The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement. It should be emphasized that any new data or information may lead the Committee to revise its stance. The summary of the Monetary Policy Committee Meeting will be released within five working days.

This is the highest LLW rate since Feb 2009

After the actual rate hike, which however may not be sufficient as many had expected the central bank to raise as high as 20% to stop the attack on the currency, the TRY spiked as low as 4.5817 from 4.9156 earlier, however, the move is starting to reverse.

After first flash crashing in the night session (a move which the sellside promptly blamed on Japanese retail trader stops getting hit in TRYJPY, which then channeled across USDJPY and then the Nikkei), then slumping to a new all time low just shy of 5.00, moments ago the Turkish Lira soared, with the USDTRY plunging from 4.85 to 4.75 after the Turkish Central Bank said "The Monetary Policy Committee has met to discuss recent developments" in what appears to have been an extraordinary rate meeting.

The statement comes after economy minister Zeybekci said earlier on Wednesday that authorities should exercise authority and should not involve the President in decisions.

The result was an immediate move higher in the TRY.

The Lira then spiked for a second time deputy PM Mehmet Simsek commented on twitter, saying that Turkey is committed to fiscal discipline and that it is time to restore monetary policy credibility.

He then added that:

The Lira spiked more after the Simsek tweets:

However, with Turkey now facing a currency crisis, which can quickly translate into a funding, and debt crisis coupled with soaring inflation, the market will be looking for much more than just jawboning. Indeed, as Bloomberg reports, while traders scream for action to stop the free fall, the forward market is still pricing in an assumption that Governor Murat Cetinkaya hasn’t thrown in the towel just yet. The implied yield on three-month forwards points to a 200 basis-point increase in the late liquidity window, the country’s de facto policy rate.

That said, unless Turkey actually does something in the next day or two, today's TRY spike will not last long.</s>The Turkish lira has continued to plummet so far in 2018, sinking to fresh all-time lows as a worrisome cocktail of economic developments diminished demand for Turkish assets. On Monday morning it fell to an exchange rate lower than 4.55 liras per US dollar, while inflation reached a double-digit figure.

The Turkish currency has dropped by 16.5% since the start of 2018.

 Market pundits expressed concerns over the statements made by Turkish President Recep Tayyip Erdogan in London about the prospect of the government tightening his grip on the monetary policy. Investors worry that the country’s central bank is either unwilling to raise interest rates or has lost its independence.</s>The Turkish lira dropped as much as 5% on Wednesday to a fresh low, adding to the currency’s steep slide this year over the central bank’s lack of action on interest rates that analysts think is desperately needed to combat high inflation.

In morning trade in Europe, the dollar rose to as high as 4.92 lira, before settling back toward 4.85. The currency is now at its weakest level against the dollar since the lira was re-denominated in 2005.</s>ANKARA, May 23 (Reuters) - Turkey’s central bank raised its late liquidity window rate to 16.5 percent from 13.5 percent to support the ailing lira, which has lost a fifth of its value against the dollar since the start of this year.

In an emergency meeting, the bank left its overnight borrowing rate unchanged at 7.25 percent, its overnight lending rate unchanged at 9.25 percent and one-week repo rate unchanged at 8.0 percent.</s>
• It had dropped to all-time lows Wednesday, prompting the central bank to raise interest rates ahead of its June meeting.
• Follow the lira in real time here.

The Turkish lira continued sinking Thursday as investors blew off an emergency interest rate hike.

The lira was down 5.15% to 4.7858 versus the dollar at 8:00 a.m. ET, resuming a selloff that brought the currency to all-time lows Wednesday.

Turkey’s central bank raised rates sharply Wednesday by 300 basis points to 16.5%, temporarily propping up the currency.

President Recep Tayyip Erdogan, who is on the ballot for reelection next month, said last week in an interview with Bloomberg TV that he will step up his role in shaping economic policy. The comment raised concern about how much influence Erdogan, a self-declared “enemy” of interest rates, will have on the central bank.

“There is no disputing that the comments Turkish President Recep Tayyip Erdogan made last week regarding him having more influence in economic matters and monetary policy has been the catalyst behind the depression the Lira currently finds itself in,” said Jameel Ahmad, head of market and currency strategy at FXTM.

Erdogan said “financial discipline will continue” following the rate hike, according to Reuters, but markets seem to be remaining skeptical.

The central bank’s next policy meeting is scheduled for June 7.</s>Turkey’s central bank intervened to halt the free fall of the Turkish lira on Wednesday, but it isn’t clear whether policy makers will be able to stave off a full-fledged currency crisis.

The Central Bank of the Republic of Turkey raised its late liquidity window lending rate by 300 basis points on Wednesday, in a surprise move that put a halt to the lira selloff — at least for now. The lending rate now sits at 16.5%, compared with 13.5% before.

The U.S. dollar had rallied to a historic high against Turkey’s lira USDTRY, +0.0175% on Wednesday, buying 4.9233 lira at the high, before the path reversed on the back of the CBRT’s action and the lira found its feet again. The buck last bought 4.5755 lira. In the year to date, the Turkish currency has dropped more than 20% against the dollar, according to FactSet data.

The euro-lira pair EURTRY, +0.1382% behaved similarly, first rallying to an all-time high but paring the rise after the rate increase. The euro last bought 5.3494 lira. The U.S. and eurozone are two of Turkey’s most important trading partners.

The central bank has been operating in a peculiar environment given that Turkey’s inflation has been hitting double digits and its currency keeps sliding to historic lows. Moreover, the government of President Recep Tayyip Erdogan has been critical of the central bank, calling for lower interest rates.

Just last week, Erdogan, who is expected to win re-election to a five-year term in a snap election called for June 24, said he was looking to take more control of monetary policy during his next term. His comments led market participants to believe the independence of the central bank was in jeopardy, and ratings agency Fitch wrote that a “greater erosion of monetary policy independence would put further pressure on Turkey’s sovereign credit profile.”

Also see: Here’s why Turkey’s snap election won’t solve all the lira’s problems

While Wednesday’s CBRT action was both aggressive and in line with its goal of reducing inflation to single digits, it could be enough “to clear lira shorts and consolidate dollar-lira around 4.40/4.50, a level that we would have considered of extreme lira weakness only three weeks ago,” wrote Christian Maggio, head of emerging markets strategy at TD Securities.

Indeed, there is more to the lira’s weakness. Turkey’s large current-account deficit and its reliance on foreign — especially dollar-denominated — funding make the country vulnerable in the environment of monetary policy normalization. Rising rates in the U.S. mean a higher price tag on Turkey’s debt burden. And the strong dollar, which has been pushed higher on the back of rising Treasury yields as well as supportive economic data, also doesn’t help.

The selloff that has ravaged emerging markets currencies since the beginning of the quarter has hit Turkey, along with Argentina USDARS, -0.0049% which is facing a currency crisis of its own, the hardest.

“In spite of today’s hike, we still see around a one-in-three chance that the CBRT is forced to hike further before their next official meeting on June 7,” Maggio said. 



Should the lira really stabilize over the next weeks, the central bank would more likely taut its hawkish message to avoid raising rates again, in part due to the political opposition to higher rates.

“This would imply an ongoing fragility of the currency market sentiment,” Maggio said.</s>
• The Turkish lira fell to record lows against the greenback overnight Tuesday.
• President Recep Tayyip Erdogan, who is running for reelection, is a self-proclaimed “enemy” of interest rates.
• Follow the lira in real time here.

The Turkish lira plummeted to a record low versus the US dollar Tuesday as investors pull cash out of the country ahead of a presidential election next month.

The lira fell 4.8% to 4.9233 per dollar around 8:30 a.m. ET. Overnight it had dropped to a record low 4.9290.

“The currency is in complete freefall and the outlook is still that there is an increased risk of further losses ahead,” Jameel Ahmad, head of currency and market strategy at FXTM, wrote Tuesday.

Turkish President Recep Tayyip Erdogan – a self-proclaimed “enemy” of interest rates – said last week in an interview with Bloomberg TV that if he wins the election, he will take more responsibility for the economy.

“We are still a month away from the upcoming June 24th elections in Turkey, but I do think that traders will be encouraged to price in as much negative news into Turkey as they can before the event,” Ahmad wrote.

The selloff further pressures the Turkish Central Bank, which is scheduled for a policy meeting June 21. Some economists are even anticipating an emergency rate hike before then.

The lira has shed 28.5% versus the dollar this year.</s>Update: not long after we published this, the Lira plunged some more, tumbling more than 4% on the day after some comment from the ruling party that could have been... avoided:
• TURKISH RULING AK PARTY'S ELECTION DECLARATION SAYS WILL TAKE MEASURES IN COMING PERIOD TO EASE FINANCIAL PRESSURE CAUSED BY INTEREST RATES

As widely expected , the beneficial boost to the Turkish Lira from yesterday's emergency 3% hike in the late liquidity window rate by the Turkish Central Bank did not even last one full day, and on Thursday the Turkish Lira collapse resumed, with the currency reversing much of yesterday's gains, sliding as much as 3.5% - the biggest decline across Emerging Markets - amid the previously discussed concerns that the rate hike will provide only temporary support.

The central bank acted after three weeks of turbulence in the currency market, with the lira rallying 2 percent by the end of Wednesday, although as of this morning those gains are now lost, and judging by the chart below, Erdogan's demand that Turks not exchange their rapidly devaluing currency into dollars and other foreign currency has made them do just that.

Additionally, as Bloomberg's Stephen Kirkland notes, the market is about to test president Erdogan's vow not to intervene in monetary policy: "beyond fueling the debate over whether Turkey's 300bp was enough, today's lira about-face also tests the central bank's tightening resolve, as well as Erdogan's vow of allegiance to global principles of monetary policy."

President Recep Tayyip Erdogan, who’s seeking re-election in a June 24 vote, didn’t specifically mention the rate increase in a televised speech Wednesday, but sought to reassure investors by pledging allegiance to global principles on monetary policy. He’s due to kick off a campaign for re-election on Thursday, as polls suggest he may face a tougher challenge than in the past.

Until then, trader nerves will be on frayed: "Is lira weakness avoidable? Perhaps not so much, considering Turkey’s high inflation and large external financing needs,” said Emre Akcakmak, a Dubai-based portfolio adviser at East Capital International.

As shown in the chart below, this trade jitteriness has manifested in the biggest surge in TRY implied vol since the financial crisis.

Potentially adding to the confusion, Bloomberg's Anchalee Worrachate writes this morning that "whispers of capital controls have re-emerged", as "Turkey's currency dilemma may be deja vu all over again for investors wary of the fraught history of capital controls."

Back in September 1998, Malaysia's measures to counter outflows and fix the exchange rate drew criticism from the IMF. But Paul Krugman supported it, writing in a Fortune magazine article that "currency controls are a risky, stopgap measure, but some gaps desperately need to be stopped." I'm not suggesting capital controls are even an option for Turkey. Yet the judgment by some that yesterday's rate hike was a temporary fix -- particularly as the lira resumes weakness today -- underscores the need for measures to give policy makers breathing room on the currency.

Meanwhile, as we summarized yesterday, analyst remain skeptical the one-off intervention by the CBRT will be successful: The rate increase “won’t trigger a sustainable reversal in USD/TRY after confidence has been shattered over the past few weeks,” said Piotr Matys, an EM FX strategist at Rabobank in London. "More is required to restore confidence among investors and the central bank may have to tighten monetary policy further perhaps as soon as on June 7."

The good news is that while the currency rout has returned, so far it has spared other Turkish assets as stocks and bonds rallied. The yield on Turkish 10-year debt dropped 23bps to 14.04%, the lowest level since May 14, bringing it’s three-day decline to 54 basis points. The benchmark Borsa Istanbul 100 Index rose 1.4 percent, led Akbank and Turkiye Garanti Bankasi.

A recap of what some other analysts and traders say is below, as first noted yesterday and recapped courtesy of Bloomberg:
• “It may suffice for the near term if global markets also turn supportive.” Otherwise, it’s only a brief pause
• Interest rates may have to rise to 20% to control the rout
• The lira could rebound to about 4.4 per dollar
• Erdogan is likely to be a bit more hawkish on the FX side in his pre-election speech tomorrow, which should support the lira
• In medium term, rate hikes aren’t likely to help the lira, given the still-widening current account deficit and apparently low sensitivity of inflows to interest rates
• “Hence TRY will likely remain an under performer further out”
• Rate hike should be enough to stem selloff, but more is needed to restore credibility
• "More signals may be needed, otherwise the adjustment higher in USDTRY remains inevitable"
• Forecasts a potential level of 4.4 in 2Q, as high volatility and possible corporate demand complicates the picture

Delphine Arrighi, a money manager at Old Mutual in London
• Hike might be "just enough" to calm the market, but more needs to be done to reestablish credibility
• Without economic policy turnaround, TRY may weaken more medium-term
• Hike is a step in the right direction, but won’t be enough to change market sentiment
• "The positive impact will only last if the CB continues to pursue a hawkish policy; a one-off will not change sentiment except in the short term"
• We have not seen policy response to address the imbalances

Erik Nelson, a currency strategist at Wells Fargo in New York
• More commitment to deal with high inflation will be needed over the longer term
• "Without more concrete and sustained signs of central bank commitment to bringing down inflation, the Turkish currency will likely remain under pressure going forward"
• “We would maintain a bearish view on the currency over time unless there are more sustained actions"
• Forecasts the TRY to end 2Q at 4.3, but says there are some upside risks to that estimate
• Turkey may need to raise rates again as policy makers are “far behind the curve”
• Credibility of Turkey’s central bank has been “shot to hell” over the past month, he says on Twitter

Win Thin, New York-based head of emerging-markets strategy at Brown Brothers Harriman
• 300 basis points is “a very weak response” to the depreciation in the lira
• Any currency relief “is likely to be temporary if this is all that the bank is doing”
• Central bank should have raised to at least 20%
• “I’m not convinced 300 bps are enough at this stage to stabilize the Turkish lira. A week ago, maybe, but as of today my sense is that the market has moved on and I would have preferred the Central Bank of Turkey to have surprised the market and regained some type of control with inflation expectations”
• “This is a relevant move for sure if they’re serious about tightening and fixing the inflation problem. However, they must be ready to do more if needed”
• Rate hike is enough to stabilize the lira in the short-term as some of the large short Turkey positioning will now quickly unwind, which will support the market
• However, the Turkish central bank’s credibility has been badly damaged during this episode of sharp lira depreciation
• “If the Turkish authorities had wanted to get well ahead of the curve, reduce inflation expectations on a more sustainable basis and to drive down Turkey’s long-dated debt funding costs over the longer term, they should have delivered an even larger hike than +300bp and also accompanied the hike with a simplification of its monetary policy tools”

Philip Wee, among other analysts at DBS Bank Ltd.:
• It is too early to conclude that the worst is over for the Turkish lira even after the currency rebounded from a record low
• Erdogan’s administration still needs to address the causes, not the symptoms, of the lira’s rout
The Turkish Central Bank raises its "late liquidity window" rate from 13.5% to 16.5% in a move to counter the slide of the Turkish lira over the last three weeks. Other rates are left unchanged.