The Turkish lira fell 1.5 per cent today and was set for its biggest weekly fall since May, continuing a trend of turbulence for the Turkish economy that has been buffeted by regional instability, insecurity and domestic political uncertainties.
The lira has been pounded by concerns about Turkey’s political reforms, its sluggish economy, rising inflation and terrorist attacks, with investors unconvinced the central bank will take the necessary steps to shore up the currency.
Today, the central bank decided not to open a one-week repo auction for a second consecutive day, in an attempt to tighten lira liquidity and bolster the currency. This forced banks to resort to its overnight lending rate of 8.5 per cent interest or its late liquidity window at ten per cent.
However, the lira was still set to end the week down 4.7 per cent against the dollar – on track for its biggest weekly fall in eight months. It has lost almost a quarter of its value since the failed coup attempt in July 2016.
“The market continues to look for one principal message – that the central bank is independent. That really is the one message the market needs now,” said Simon Quijano-Evans at Legal & General Investment Management.
The bank is under political pressure not to raise rates, with President Recep Tayyip Erdogan preoccupied by slowing economic growth and eager for lower borrowing costs to spur investment.
Turkish economic growth was around three per cent last year, a stark contrast to its previous healthy performance during the darkest days of the global financial crisis that began in 2008.
Late last year, and rallying to the call of Erdogan, Turkish traders began selling their dollar assets and buying lira to help bolster their country’s ailing currency. However, the lira’s performance this week indicates that such measures are incapable of preventing the falling value of the currency.
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