Istanbul:Turkey’s embattled lira on Wednesday hit new historic lows against the US dollar after suffering a hammering in Asian trade, as markets watched to see if the central bank takes emergency action to buttress the Currency.
After sharp losses on Tuesday, the lira continued to underperform all other emerging market currencies, losing 3.0 percent against the dollar to trade at 4.81. Over the last month alone, the lira has lost over 18 percent in value against the dollar as fears grow over the health of the Turkish economy which is dogged by double-digit inflation despite high growth.
The sharp fall in the currency’s value has come at a hugely sensitive time as Turkey heads to June 24 presidential and parliamentary elections where President Recep Tayyip Erdogan is seeking a new mandate and a thumping parliamentary majority.
The next meeting of Turkey’s central bank is not due until June 7 but economists believe an emergency — and substantial — rate hike by the central bank is possible as the pressure on the lira continues.
“It seems highly likely that they’ll take action,” said William Jackson, senior emerging markets economist at Capital Economics in London, saying the bank needed to raise rates by 200-300 basis points to provide some support to the lira.
He told AFP the sell-off in the lira over the past few weeks has been even more severe than that which preceded the emergency hike by the bank in early 2014. He said the central bank needs also to act to “shore up its own credibility”.
“Markets seem to be questioning whether the central bank will be able to take action, which is why the lira is doing so much worse than other emerging market currencies.” The situation has not been helped by Erdogan himself.
He hurt the lira last week by saying he plans a greater say in monetary policy if he wins the elections, which markets saw as a slap in the face of the nominally independent central bank. He has also made statements that fly in the face of economic orthodoxy, describing interest rates as the “mother and father of all evil”.
The economy has generally been a trump card for Erdogan in his 15 years in power, with the Turkish strongman crediting himself with ending chaos that brought the country to near financial meltdown in the 2000-2001 crisis.
