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​Commerzbank Do Not Expect Rate Hike to Impact Lira

TURKEY
  • Commerzbank do not think that a 100bp divergence between a 500 or 600bp rate hike, one way or another, will impact the lira exchange rate much. They say the market’s reaction will not be driven by classic concepts of interest rate arbitrage, but by what the central bank's actions signal about CB independence and how high rates can go.
  • Regarding President Erdogan’s support of tighter policy, Commerzbank say market skepticism boils down to a disbelief that Erdogan will tolerate the extended high interest rates and slower growth required to properly bring inflation down in Turkey. They say that while he could be showing support now, there could come a moment leading up to the 2024 local elections where he reverses stance.
  • They say that if it is the case that we must wait for Erdogan to confirm his views through tough periods of growth, then today’s rate hike can at best add some volatility to the lira, but that the currency’s fundamental outlook will remain undetermined for some time longer.
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