Turkish lira hits new record low against dollar, surpassing 2.6 mark
ISTANBULThe Turkish Lira has dropped to a new all-time low yet again, seeing 2.6 against the U.S. dollar amid the strengthening trend of the greenback and investor concerns about the fate of Turkish economic management.
The dollar/lira ratio rose above 2.6 and tested 2.6002 before easing back to around 2.5905 in the afternoon, as the U.S. currency continued to rally around an 11-year high.
The lira has become the emerging market currency that has weakened the most since the beginning of this weak, losing 3 percent of its value.
Despite the global rally of the dollar, the lira also distinguished itself from the other emerging market currencies on March 5 as while the lira dropped by 1.2 percent, other emerging market currencies’ loss was limited to around 0.1 percent.
According to analysts, political pressure on the Central Bank for a rate cut despite the tumble in the lira in addition to contradictory remarks about economic management has triggered distress in the market, adding to the lira’s pain.
Efforts by Turkish Prime Minister Ahmet Davutoğlu and his economic team to soothe the nerves of investors in New York, who hold more than a fifth of the main Turkish stock index, appeared to have had little immediate effect.
“There has not been any step or statement from a bureaucrat or minister responsible for the economy to calm the situation. Domestically, perceptions have been completely spoiled,” said a chief foreign exchange trader in Istanbul.
“It is clear that the results of the meetings in New York are not exactly as desired.”
Bank stocks tumbled 4 percent, partly on fears that the lira’s depreciation would feed through to inflation and trigger losses on their bond portfolios.
Erdogan has demanded deeper rate cuts to drive growth, despite stubborn inflation. That has raised concern about the futures of Central Bank Governor Erdem Başçı and Deputy Prime Minister Ali Babacan. An anchor of investor confidence, Babacan looks increasingly unlikely to return to office after June’s general election.
“An emerging Turkish lira crisis – made at home,” wrote Timothy Ash, head of emerging market research for Standard Bank, in a note to clients. “It is absolutely perverse how Turkey’s policy makers have been driving this attack on the [Central Bank], in an effort to force rates lower.”