Analyst's opinion: Turkish regulator's actions stopped the fall of the lira

There are several currencies in the world that have been performing worse than the ruble lately. In terms of spot dynamics, there are three of them: Brazilian real, Argentine peso and Turkish lira. The incessant fall of the lira made the central bank of Turkey decide to sharply raise the key rate by 200 bp at once, up to 10.25%. The Russian Central Bank, despite the fact that it is carrying out a gradual rate cut, never forgets about financial stability. During the peak of the pandemic, monetary policy (MP) was in the interests of the economy, this also applies to the volumes of ruble and foreign exchange liquidity provided for instruments with different maturity. But the rate in Russia remains in positive territory. According to Rosstat, the CPI is about a percent lower (by the median value) than the nominal rate of the Central Bank. In the overwhelming majority of large economies, the real rate is negative, this applies to Japan, the United States, Great Britain, the Eurozone, etc. In Turkey, despite the relatively high nominal rate, 8.25%, the central bank pursued a super soft policy. And although monetary stimulus is significant, the soft monetary policy also has a reverse side which is a high risk of instability in the national currency. During 7 trading sessions, the Lira showed new historical lows to the basket of reserve currencies. Since the beginning of the year, it has lost about 24% against the US dollar and stopped at 7.70 USD/TRY. According to Freedom Finance analyst Yevgeniy Mironyuk, the weakness of the Turkish financial system is associated with the high debt burden of the state and corporate sectors, low gold and foreign exchange reserves, a cut down on the country's tourism sector due to the pandemic. It is 10% of the country's GDP, and employs 8% of the working-age population. “Of course, the debt burden is not as critical as in Argentina, the country does not even allow a technical default. The dynamics of the national currency of Turkey since the beginning of the year is comparable to the ruble, Argentine peso, South African rand," the expert said. The analyst notes that the actions of the Turkish regulator stopped the fall of the lira. On the day the decision was made, the quotes fell from 7.7 to 7.62 lira per US dollar. "Despite the continuing high volatility at the very end of the week, the rate is consolidating near the 7.6 USD/TRY mark. We expect its further stabilization," Yevgeny Mironyuk notes. According to him, it is important for a Russian tourist that prices in shops and resorts will become lower in Turkey, and this will allow thinking to spend holidays in this country saving money at the same time.