Turkish Lira hits record low against US dollar
Turkey’s lira weakened to an all-time, trading below 10 to the dollar, with concerns looming that the central bank will again slash interest rates at a meeting next week despite high inflation.
The lira weakened as far as 10.0175 against the U.S. currency on Friday evening, from a close of 9.92 a day ago. It is down by more than 25% so far this year.
The currency is the worst performer in emerging markets again this year, having shed two-thirds of its value tmsnrt.rs/31GcBBV in five years, eating into the incomes of Turks along with annual inflation near 20%.
The latest lira slide was triggered by higher-than-expected U.S. inflation data on Wednesday, which boosted the dollar due to possible earlier Federal Reserve policy tightening. Rising U.S. rates tend to pull funds from emerging economies with high foreign debt, like that of Turkey.
Investors say the lira’s tumble is propelled by concern over monetary policy credibility as President Tayyip Erdogan pushes for lower interest rates to boost growth.
Governor Sahap Kavcioglu has said curbing the current account deficit is key to price stability and boosting the weak lira, forecasting that the balance of payments (BoP) will improve in the rest of 2021.
The central bank (CBT) has cut its policy rate by 300 basis points since September, arguing that inflationary pressure is temporary. A Reuters poll on Thursday showed the bank is seen cutting rates by 100 points next week to 15%.
But some analysts are sceptical.
“The BoP may have looked good through the summer months, but this will not prevent a lira slide now, especially if CBT were to continue cutting interest rates,” said Tatha Ghose, an analyst at Commerzbank.
A central bank survey on Friday showed market participants expect annual consumer price inflation to be 19.31% at the end of the year, up from a forecast of 17.63% a month earlier.
The survey also forecast economic growth will reach 9.2% this year. Separate data on Friday showed industrial production expanded 8.9% year-on-year in September, below a Reuters poll forecast of 10%.