Turkey's Transforming Monetary Policy and Its Impact on the Turkish Economy
Monetary policy in Turkey has undergone a significant transformation, shifting from unconventional measures that persisted for many years, causing investor flight and the devaluation of the Turkish currency. This shift occurred following President Recep Tayyip Erdogan's re-election in May of this year.?
Since Erdogan's victory, the Turkish Central Bank has aggressively increased interest rates, raising them by 2,650 basis points to reach 35% by October. This was a significant departure from the 8.5% rate before the last presidential elections.?
This rapid increase in interest rates is a response to mounting inflationary pressures, which climbed to 61.53% in September, up from 58.94% in August 2023, with expectations of further increases in the near future.?
However, a noticeable discrepancy exists between the government's fiscal policy, which remains somewhat expansionary with recent wage increases and incentives, and the monetary policy administered by the Turkish Central Bank, characterised by consistent interest rate hikes to combat high inflation. Real interest rates are negative, currently at approximately 26%, indicate the need for further tightening in the upcoming phase.?
From a technical perspective, the US dollar reached a record high of 28.33 against the Turkish Lira today. The Positive Movement Index (DMI+) in blue stands at around 26 points, while the Negative Movement Index (DMI-) in orange is about 5 points, reflecting a significant gap between these two indicators, indicating strong buying pressure on the US dollar against the Turkish Lira. Moreover, the ADX trend strength index in green is at approximately 50 points, more than double the 25 points, indicating a robust upward trend momentum.?
The Relative Strength Index (RSI) is around 87 points, exceeding the 70-point threshold and falling into the overbought zone, suggesting continued upward momentum for the US dollar against the Turkish Lira.?
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