Turkish Lira hit by domestic, foreign factors

The Turkish Lira hit record lows this week due to several factors. The currency is like a pendulum swung in the middle of both domestic and foreign developments.

The lira first fell to near record low levels early on Dec. 14, just after police detained around 30 people from media groups linked to the movement of Fethullah Gülen over the weekend. The decline in the lira then accelerated in amid the probable decision later this week by the U.S. Federal Reserve (Fed) to increase rates for the first time in almost a decade.

There is more. Investors have already moved out of emerging markets amid the collapse of the Russian currency. The ruble plunged around 10 percent against the dollar on Dec. 15, its sharpest fall since 1998, and Russian assets were sold off across markets, testing the firepower of the Central Bank. The Russian currency weakened beyond 60 rubles per dollar for the first time, hitting a record low of 64.44 to the dollar on the Moscow Exchange.

The lira hit a level of 2.39 against the dollar in the late afternoon of Dec. 15 in light of these developments.

It continued to slide against the dollar after President Recep Tayyip Erdoğan made a speech at the opening ceremony of an industrial zone in the province of Kocaeli.

Erdoğan slammed the European Union for its “impetuous” criticism of an ongoing police operation that resulted in the high-profile detention of members of the media and police officers.

“The European Union cannot interfere in steps taken ... within the rule of law against elements that threaten our national security ... They should mind their own business,” he said.

The worst was waiting at the door.

Brent oil dropped below $60 a barrel for the first time since 2009.

Russia raised its key interest rate to 17 percent from 10.5 percent early yesterday, in an emergency move to halt a collapse in the ruble as oil prices decline and the country’s sanctions-hit economy slides toward recession.

Normally, plunges in oil prices are good for the Turkish economy, which suffers from a high current account deficit mainly from its considerable energy imports. Therefore, Turkey’s main stock exchange index has actually benefited from the latest decrease in oil prices, and a fresh wave of panic selling mainly hit the oil-producing Gulf Arab economies.

However, the case is different for the Turkish currency. Buying Turkish liras is one of the last things investors are currently thinking of.

The lira hit a record low of 2.41 liras against the dollar yesterday, worse than Monday’s record low of 2.39 liras against the dollar.

When the lira hit the 2.41 mark, the Central Bank announced that the foreign exchange needs of state enterprises would be directly supplied by the Bank. The lira then recovered to around 2.37.

More action seems to be needed to overcome the rally in the currency.

However, it is not easy for the Central Bank to raise rates in the middle of an anti-rate campaign in some governing circles.

In this vein, Economy Minister Nihat Zeybekci said yesterday that he did not believe the lira’s exchange rate required measures of “strong intervention,” adding that it would "find its own balance" in the market after hitting record lows the day before.

At the very least, fewer reactions from Turkish authorities against anyone or any institution could help decrease the tension over the Turkish currency for now.