Turkey’s lira hits new record low against dollar

Turkey’s lira hits new record low against dollar

Turkey’s lira hit a fresh record low on Monday, continuing a declining trend over concerns about inflation, loose monetary policy and the central bank’s depleted forex reserves.

Adding to concerns are Turks’ surging demand for hard currencies and gold, costly interventions in the forex markets as well as possible sanctions from the European Union over tensions between Ankara and Athens in the east Mediterranean.

The lira stood at 7.4625 against the dollar at 1118 GMT, weakening from a close 7.4410 on Friday. Earlier, it hit 7.4650, its weakest level on record, and is down more than 20 percent this year.

The central bank has taken backdoor steps to tighten policy and slow the lira’s decline but it has so far not raised its policy rate, which stands at 8.25 percent.

Those steps have increased the weighted average cost of funding over the past month to 10.14 percent as of Friday.

The rate was little changed at the end of last week, leading investors to consider whether the bank had stopped tightening policy, while data showed inflation remained elevated in August at 11.8 percent.

“Real rates are only now starting to move into positive territory but only within the existing interest rate corridor, rather than an explicit increase to the central bank’s benchmark rate,” said Emre Peker, of Eurasia group.

“So long as monetary policymakers resist a hike, unorthodox measures will not be sufficient to convince the locals to move their FX and gold savings back to lira, keeping the currency under pressure.”

Pressure on the central bank to hike rates has increased in recent months, despite an economy that contracted by nearly 10 percent in the second quarter due to the coronavirus pandemic.

The bank has given little indication it is preparing to hike rates. In an investor presentation last week, it repeated that inflation should decline over the medium term.

Related Articles

Back to top button