Turkish Lira rallies as Erdogan cools on blaming foreigners

Turkey’s lira has rallied about 11% since hitting a record low last week as a major shake-up in Turkey’s economic leadership pointed to immediate measures to support the currency.

The currency outperformed most of its peers in Europe, Middle East and Africa on Friday amid uncertainty over the availability of a coronavirus vaccine and fears of further economic damage from surging COVID-19 cases.

A week earlier the Turkish Lira was traded at 10.10 to the euro, while the rate closed at 9.10 on Friday.

The currency rallied after President Recep Tayyip Erdogan’s pledge to adopt a new economic model raised expectations of a sharp rate hike from the central bank.

Erdogan shifted to a more market-friendly tone on Wednesday, promising economic growth based on stability and international investment — a turnaround from blaming foreigners and high rates for Turkey’s woes.

The central bank is seen raising its policy rate next week to 15% from 10.25%, a Reuters poll of analysts showed.

Erdogan’s speech was viewed as implying he would condone such a hike.

Analysts also say that the currency’s rally was sparked by expectations of a more orthodox economic policy after the central bank governor and the finance minister, who is also Erdogan’s son-in-law, Berat Albayrak both left from office.

Finance and Treasury Minister Albayrak oversaw economic policy for two tumultuous years during which Turkey endured economic slowdowns, the COVID-19 pandemic and a 45% slide in the lira.

Still, analysts were sceptical of the implications of recent changes in Turkey’s central bank administration for the institution’s independence from government influence with Erdogan himself known to have been dictating the central bank’s interest rate policies in the past.