A money changer counts Turkish lira banknotes. Picture: REUTERS/MURAD SEZER
A money changer counts Turkish lira banknotes. Picture: REUTERS/MURAD SEZER

Istanbul — Traders are not pricing in another full-blown policy blunder despite President Recep Tayyip Erdogan’s latest encroachment on central-bank independence.

Cross-currency swaps — which gauge the market’s appetite for lira risk — held within its recent trading range below the 20% mark, trimming an increase of about 100 basis points during early trading.

That’s probably because the market had already given the policy maker the all-clear to ease financial conditions. The one-year swap rallied from a high of more than 30% in May to a low of 18.81% last week, about 520 basis points below the central bank’s policy rate of 24%.

And with inflation seen slowing dramatically through September, Turkey’s real rate will stay attractive, even if borrowing costs are reduced.

The irony is that the road to lower interest rates would have been smoother had Erdogan not dismissed central bank governor Murat Cetinkaya. Now that he has, the worry is that borrowing costs will be lowered faster than warranted.

Bloomberg