Turkish lira crashes to new low against the dollar

24 May, 2018, 17:27 | Author: Cecil Buchanan
  • How Turkey Is Heading Toward a Currency Crisis

The lira has lost more than 20 percent of its value against the dollar since the start of the year.

"The partial volatility in the currency is certainly not consistent with the economic realities of Turkey", he said, pointing to Turkey's 7.4 percent growth rate and other indicators.

The lira weakened to over 4.80 per dollar on Wednesday, down some 5 percent since the previous day.

The Turkish lira tumbled 5 percent against the USA dollar earlier in the day, doubling down fears of a full-scale currency crisis after a Fitch statement warned that curtailing the Central Bank's independence will inflict pressure on Turkey's sovereign credit profile.

The currency is now trading at 4.8 per dollar, with pressure on the central bank to hike interest rates as the lira goes into free-fall.

"Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior", the Central Bank said in a statement after the meeting.

"Accordingly, the committee made a decision to implement a strong monetary tightening to support price stability", it added, according to BBC.

"It's impossible to say that the recent fluctuations in the foreign exchange rates are correlated to Turkey's macroeconomic figures", he said.

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Erdogan has always painted himself as a champion of the Turkish economy, pointing to how growth and investment have expanded under his rule after the misery of Turkey's 2000-2001 financial crisis.

"A tight stance in monetary policy will be maintained decisively until the inflation outlook displays a significant improvement", it added. The borrowing rate was kept at 0 percent while the lending rate was increased from 13.50 to 16.50 percent.

Dragging on the Turkey market outlook, the lira currency has tumbled to record lows in recent weeks and weakened by more than 20% against the United States dollars so far this year and depreciated 70% over the past five years.

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

Turkey's central bank is set to meet on 7 June to discuss monetary policy, with pressure on the body to sharply increase interest rates.

"The central bank has hiked interest rates several times over the past few years to shore up the currency".

Erdogan said necessary measures would be taken to decrease the inflation rate and reduce the currency deficit soon after the elections.

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