Turkish lira gains ahead of critical central bank rates decision

Turkey’s lira advanced against the dollar ahead of a key central bank meeting on interest rates later on Thursday.

The lira rose 0.3 percent to 8.04 per dollar in Istanbul trading.

The central bank is holding its first meeting on interest rates since President Recep Tayyip Erdoğan sacked and replaced its governor in mid-March. New arrival Şahap Kavcıoğlu is expected to keep borrowing costs unchanged at 19 percent, according to polls of economists held by Reuters and Bloomberg.

The lira has slid by more than 10 percent against the dollar since Erdoğan sacked governor Naci Ağbal, a former finance minister. Ağbal had hiked interest rates from 10.25 percent during his four-month tenure to defend the lira and rein in inflation of 16.2 percent.

The central bank’s year-end goal for inflation is 9.4 percent. Kavcıoğlu, who sympathised with Erdoğan’s aversion to high interest rates ahead of his employment, says that the bank is determined to achieve its inflation targets.

Expectations for year-end inflation worsened to 13.1 percent this month from 11.6 percent in March, according to a central bank survey of finance industry professionals and business leaders published on Friday.

Any surprise cut to interest rates could lead to a decline in the lira’s value of between 10 percent and 15 percent, Morgan Stanley said in a report to clients, according to Reuters.

Two other members of the central bank's seven-member rates settting committee have been replaced since Kavcıoğlu's arrival.