The Lira adjusted sharply lower against the US Dollar in June by just over 20%. Economists at MUFG Bank analyze USD/TRY outlook.

Important for policymakers in Türkiye  to regain credibility amongst foreign investors

It is now important for policymakers in Türkiye to regain credibility amongst foreign investors who have sharply cut back exposure to Türkiye. It will take time to regain investor confidence given fears that the policy reversal could prove short-lived given it will involve a painful adjustment for the economy, and President Erdogan is a long-time advocate of lower rates.

Under the leadership of new Governor Erkan, the CBRT raised the policy rate by 6.50 percentage points. While it was a step in the right direction, the size of the rate hike disappointed expectations and has placed more pressure on the Lira to adjust lower. We expect further similar sized hikes in July and August to lift the policy rate closer to inflation which remained elevated at 39% in May