The lira Strengthened by 4% to a three-week high of 7.79/USD after President Recep Tayyip Erdoğan pledged a new economic era for Turkey. According to Erdoğan, Turkey’s future economic growth will be based on lower inflation, stability, and foreign investment. The president also promised to personally promote opportunities in Turkey to international investors. The remark contrasts Erdoğan’s previous stance, which blamed international investors for Turkey’s economic woes.
Erdoğan recently overhauled the country’s leadership which saw the replacement of the central bank chief and the finance ministry. Naci Agbal and Lutfi Elvan, both Erdoğan’s close allies, were appointed as the country’s new central bank chief and finance minister, respectively. Some economists saw Erdoğan’s promise as a sign of reforms in Turkey’s economy. Societe Generale and Citi recommended bullish bets on the lira. Meanwhile, JP Morgan upgraded its lira exposure from “underweight” to “marketweight.”
However, Erdoğan remains a firm believer in an unorthodox economic theory that high interest rates are the cause of inflation. That could spark concerns on the central bank’s independence. The new central bank chief will lead a policy meeting on November 19, when he is expected to raise interest rates sharply from 10.25% to curb the 12% inflation.
