Euro hits new high against the Lira

Following inflation surpassing forecasts and a surge in domestic foreign currency demand at the week's start, the Central Bank of the Republic of Turkey (CBRT) took two tightening measures aimed at limiting credit growth.

Additionally, the CBRT warned of ongoing efforts to strengthen the monetary transmission mechanism alongside these measures.

WILL THE CENTRAL BANK RAISE INTEREST RATES AFTER ELECTIONS?

Market players have raised their inflation forecasts above CBRT estimates following February's inflation data, which exceeded expectations and showed persistent high core indicators. Some market participants speculate the CBRT might increase interest rates after the elections.

The CBRT has indicated a willingness to tighten monetary policy further if inflation trends worsen, taking two distinct steps regarding credit. However, experts have described these measures as delayed in strengthening the policy rate to market rate transmission.

To counter "unnecessary volatility," the CBRT engaged with banks and executed its third Turkish Lira-settled forward foreign currency sale this week, totaling $426 million, bringing the total forex sale position to its highest since September 2023 at $1.4 billion.

CDS RATES DECLINE

Turkey's five-year Credit Default Swaps (CDS) retreated for the second consecutive day by five basis points to 312, after reaching a peak of 321 basis points on Wednesday, the highest since February 5.

The CBRT's net foreign reserves dropped by $1.9 billion in the week of March 1, marking a ten-week loss of $19.6 billion as it met the demand of depositors shifting from foreign currency-protected deposits to foreign currency.

EURO REACHES NEW PEAK

This morning, the dollar/lira rate saw a 0.1% increase, starting at 31.9525, with the lira's depreciation accelerating since the end of February. The lira has lost 2.1% in value since the start of the month and experienced its fastest depreciation since the end of August at 1.8% over five days.

In forex markets, the Euro soared to 35.1 against the lira, marking a new high. The Euro appreciated by 1% against the dollar over the week.

The lira recorded losses of 2.7% in January and 2.9% in February.

No significant macroeconomic data is expected today within the country. A review by Fitch Ratings is anticipated tonight, which currently rates Turkey at a "B" credit rating with a "stable" outlook, contrasting with other agencies that maintain a "positive" outlook.

Globally, stock markets are rising in anticipation of imminent interest rate cuts by major central banks, with Asian markets reaching a seven-month high. The dollar and yields on U.S. Treasury bonds remain under pressure.