Turkish lira crashes to new low against the dollar

Ivan Schwartz
May 26, 2018

Turkey does have substantial buffers and a way out of current woes, S&P said, adding that a lot will depend on what the Turkish Central Bank does, if anything.

The lira's long period of decline has been attributed to the Turkish central bank's refusal or inability to hike interest rates as much as economists believe is necessary to strengthen the currency, the Wall Street Journal reports.

He added that higher oil prices were not being passed on at petrol pumps, meaning that the government's tax income was falling there too, while the large amounts of dollar loans given by the country's banks were becoming more expensive to repay due to the lira's slump.

The central bank, which uses a corridor of rates as part of its monetary policy, said it had increased the upper rate to 16.5% from 13.5%.

Fitch, which like other global ratings agencies now assesses Turkish sovereign debt as deep into junk status, warned that erosion of the central bank's independence would put "further pressure on Turkey's sovereign credit profile".

Opponents of Mr. Erdogan warn that an economic crisis is nearing.

"It is high time to restore monetary policy credibility and regain investor confidence", Deputy Prime Minister Mehmet Simsek said on Twitter, shortly before the central bank's announcement.

The situation had not been helped by Erdogan himself who has consistently pressured the central bank to keep rates down to boost growth.

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The Istanbul bourse earlier said it was taking measures to convert its foreign exchange assets to lira to "fight speculative actions aimed at creating a negative image of Turkey", but it was unclear if this would have any impact on the currency.

Things began to fall apart when President Erdogan who was in London for a three-day visit to calm concerns of worldwide investors told Bloomberg last week that he would seek a greater say in shaping monetary policy.

"Interest rates are the mother and father of all evil", said Erdogan, mentioning also a "foreign conspiracy" to harm Turkey's economy ahead of elections.

"Comments from the Turkish president raise the possibility that discretionary policymaking and policy predictability will come under pressure after June's elections", Fitch stated, referring to President Recep Tayyip Erdoğan's eyebrow-raising remarks in London last week.

The Turkish lira has fallen more than 5% to hit a record low against the United States dollar.

Since September, when the combination of problematic politics and fast rising inflation began to unnerve investors, The currency has dropped nearly 30 percent.

Ahead of the elections, Ankara has announced a controversial package of incentives and a tax amnesty, increasing fears about overspending.

Other reports by GizPress

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