Turkish lira hits record lows despite central bank support

ISTANBUL - Reuters

The lira hit an all-time low of 2.2959 against its dollar/euro basket by 0800 GMT and against the dollar it weakened to 1.9628 from 1.9495 late on yesterday. DAILY NEWS photo, Emrah GÜREL

The Turkish lira fell to record lows today, with investors brushing aside central bank efforts to shore up the currency in trade dominated by concerns about cuts to the U.S. monetary stimulus programme.

The central bank, which unexpectedly raised its overnight lending rate by 50 basis points yesterday, tightened lira liquidity on today morning by calling off its regular fixed-rate, one-week repo auction.

The lira hit an all-time low of 2.2959 against its dollar/euro basket by 0800 GMT and against the dollar it weakened to 1.9628 from 1.9495 late on yesterday.

Turkish shares and bonds also suffered ahead of the release later on today of minutes from the U.S. Federal Reserve’s July meeting, which may shed more light on when it will scale back its bond purchases.

Growing expectations the process will start soon have hit appetite for emerging markets in general, with Turkey’s large current account deficit leaving it particularly vulnerable.

The main Istanbul share index was down 1.9 percent at 70,862.74, underperforming the broader emerging markets index , which was down 0.3 percent.

The yield on the 10-year bond rose to 9.56 percent, from yesterday’s close of 9.36.

Investors are looking for further signs Turkey’s central bank - which previously said it would not sell foreign currency on additional monetary tightening days - is committed to keeping the lira steady and inflation under control.

“As speculated in the media, possible gas price hikes followed by electricity due to currency losses encountered by the state importer is not good news for inflation,” a note from Oyak Securities said.

“As the lira is still losing ground, inflation will continue to be under the spotlight.”