The Turkish lira weakened to a fresh all-time low against the dollar on Friday as investor attention focused on prospects for further central bank tightening steps ahead of its policy-setting meeting next Thursday.The lira touched a low of 7.5700, weakening from a close on Thursday of 7.5595. It has weakened more than 21 percent against the US currency so far this year.
The central bank has kept its benchmark rate steady since cutting it to 8.25 percent in May, instead using back-door measures to tighten credit and slow the lira’s decline.
Four former Turkish Central Bank policymakers, including a governor, have told Reuters the bank should set aside such back-door policy tools and use next week’s meeting to formally
raise the benchmark policy rate.
The average funding rate has risen some 25 basis points from the middle of last week to 10.41 percent. After a sharp tightening in August, the rate was steady in early September.
Deutsche Bank said in a note the central bank had restarted liquidity tightening on the back of higher-than-expected inflation and increased tension over maritime disputes in the eastern Mediterranean. It forecast an end-week level of 10.5 percent.
“Although still too low in our view, we are at least moving back into the right direction and this is the most that can be achieved with the current framework (without outright hikes),” Deutsche said.