Turkish lira hits five-month high on central bank pledges, industry uptick

Turkey’s lira hit its strongest level against the dollar since late August after the central bank pledged to keep monetary policy tight and manufacturing activity surged.

The Turkish lira is leading emerging market currencies higher this year after a rollout of the COVID-19 vaccine across the globe encouraged investors to put their capital into risker, high-return assets.

The lira climbed by 1.5 percent to 7.2 per dollar on Monday, extending a rally since an all-time low in early November to 16 percent. The gains have been spurred by a change in the central bank’s management and hikes to the country’s benchmark interest rate, which now stands at 17 percent.

Speaking last week, central bank governor Naci Ağbal adopted a hawkish tone, saying monetary policymakers would keep interest rates high until consumer price inflation of 14.6 percent slowed towards a medium-term goal of 5 percent.

Foreign financial institutions including Goldman Sachs have predicted more short-term gains for the lira, forecasting that it could trade at as strong as 7 per dollar before weakening again. The currency is expected to weaken to 7.98 per dollar by the end of the year, a latest monthly survey of finance industry professionals and business leaders by the central bank estimates.

Optimism for the post-COVID-19 global economic recovery is also helping to spur Turkish manufacturing activity and export orders, IHS Markit and the Istanbul Chamber of Industry (ISO) said in a monthly survey on Monday.

 Turkey’s manufacturing PMI, a key gauge of the industry’s performance, rose to 54.4 points this month from 50.8 in December, the biggest increase since July. Job creation reached the highest level in more than three years, IHS Markit and the ISO said. Any reading above 50 points reflects improvement in the sector.