Turkish Lira Hits All-time Low

The Turkish lira fell past 45.5 per US dollar in mid-May, hitting a fresh record low after the central bank signaled that disinflation will be slower than previously expected amid energy and food price shocks linked to the Middle East conflict. This comes against the backdrop of a disinflation strategy that relies on maintaining a degree of real appreciation in the lira, aiming to prevent currency depreciation from outpacing inflation and gradually anchor price stability. However, this approach is under strain as inflation pressures remain elevated. Policymakers now project end-2026 inflation at 26%, above the 15%–21% forecast range set in February. Consumer prices also rose 4.18% month-on-month in April, pushing the annual inflation rate to 32.37%, a six-month high and above market expectations of 31%. In response, the central bank has kept its policy rate at 37% for two straight meetings but has effectively tightened liquidity by lending at a higher 40% rate since the conflict began.

USDTRY increased to an all-time high of 45.53. Over the past 4 weeks, US Dollar Turkish Lira gained 1.77%, and in the last 12 months, it increased 17.75%.

The Turkish lira weakened past 45.2 per US dollar in May, falling to a fresh record low and extending its gradual depreciation, helped by ongoing foreign exchange interventions by the central bank. The bank’s disinflation strategy has largely hinged on maintaining a real appreciation of the lira, ensuring the currency does not weaken faster than the pace of monthly inflation. However, price pressures remain elevated. Consumer prices rose 4.18% month-on-month in April, pushing the annual inflation rate to 32.37%, a six-month high and above market expectations of 31%, as higher energy costs linked to tensions in the Middle East added to existing inflationary pressures. Meanwhile, the Central Bank of the Republic of Turkey left its policy rate unchanged in April, as expected, and reiterated its commitment to a cautious, data-dependent approach going forward.