Turkish Lira under pressure. Risk of the introduction of capital controls!

The Turkish Lira continues to lose heavily and is very close to historic highs, looking at the USDTRY pair. The next decision is only in 2 weeks, but already this week Erdogan indicated again that he expects a further cut in interest rates, from the current level of 14%. Recall that inflation in Turkey broke through the next level and in May is already 73.5% y/y.

Turkey's foreign exchange reserves are only a few billion dollars, but without swaps they would be negative. In view of this, there is a huge risk that capital controls will be introduced to end further depreciation of the currency. Of course, it is worth remembering that such a decision makes no sense in the long term, given the desire to return to the financial markets. Such decisions are only good at a time when a quick return to normality is expected. Turkey suffers greatly from high oil prices, as it imports virtually every barrel it consumes. S&P Global points to the very high risk of introducing capital controls (it is worth remembering what happened to the ruble - the ruble exchange rate is kept artificially at a very strong level, but at the same time there is no possibility of entering into transactions on the ruble). Meanwhile, the forward 1-month rate for USDTRY is 18.3...

Source: xStation5