Next week, President Erdogan's new economic team will meet again to assess monetary policy, and the expectation is that policymakers will raise interest rates 300 bps. Anything less than a 300 bps rate hike and the Turkish lira is likely to sell off sharply again and reach an all-time low against the U.S. dollar.
Currency depreciation is likely to fuel inflation higher in the coming months, and with inflation already trending around 40% year-overyear, another wave of inflationary pressures could mean more harm for the Turkish economy. In fact, should inflation push higher in the coming months, President Erdogan could reinforce his unorthodox view that higher interest rates lead to higher inflation. In that scenario, Erdogan's new economic chief and central bank governor could be removed from their posts not long after. While we never subscribed to a sharp and sudden about-face in monetary policy settings in Turkey, removing the orthodox policymakers in charge now could be disastrous for the Turkish lira. - Wells Fargo

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