Another day, another record low for the Turkish lira.
The currency has weakened further after the drubbing it received on Tuesday, with the dollar pushing at TRY4.50 in European trading, and traders still reeling from the assertion by President Recep Tayyip Erdogan that he intends to take greater control over monetary policy after elections next month.
Mr Erdogan has a long-standing aversion to higher interest rates, and recently referred to rates as the “mother of all evil ”. Economists and investors say Turkey keenly needs sharply higher interest rates to get a grip on inflation and prop up the wilting lira.
Last month, Turkey’s central bank raised one of its main interest rates by 0.75 percentage points to 13.5 per cent in a move aimed at stemming the slide in the lira. According to analysts at Commerzbank, the bank may have to act again: “we are one step closer to [the Central Bank of Turkey] having to use an emergency rate hike to stabilise the currency”, they said.
In April Turkish inflation stood at 10.85 per cent, an uptick from March’s 10.23 per cent reading. This is more than double the central bank’s target. Economists are concerned that the weakening lira will stoke a further increase in prices that may, in turn, exacerbate pressure on the currency.
The currency has taken a battering since the beginning of the year, losing 17 per cent of its value against the dollar.
Yesterday a report from Moody’s warned that “the potential triggers for a re-evaluation of Turkish country and banking risk by foreign investors continue to multiply.”