Turkish lira sliding toward record lows after rate cut

Turkish lira sliding toward record lows after rate cut

Turkey’s lira slid toward an all-time low on Friday as traders continued selling the currency after the previous day’s surprise central bank interest rate cut in the face of near 80% inflation. 

Analysts and bankers said Thursday’s cut to 13% from 14% was the central bank leaping on booming and potentially record tourist revenue, and also suited President Recep Tayyip Erdogan’s long-term drive for lower borrowing costs. 

Worries the cut will just feed more inflation resulted in a decline of 1% in the lira on Thursday to 18.15 against the dollar. It stood at 18.0870 at 1553 GMT on Friday, leaving it just above a record low of 18.40 per dollar which it had hit in December during the last major meltdown. That had been a brief “intraday” low, though, and the currency set a record closing low of 18.089 on Thursday. 

“In our view, more important than the rate cut was the signal provided by the central bank that it was uncomfortable with the recent softening in loan growth and wished to pivot back towards boosting short-term growth,” Deutsche Bank’s Fatih Akcelik said. 

He added that if that should prove right, it was likely to widen the country’s current account deficit and send the lira lower in the coming months. 

There had been no signal beforehand that a cut had been coming although the country’s badly depleted foreign reserves have nearly tripled since early July to $15.7 billion as tourists locked down by Covid-19 over the last two years have flooded back. [Reuters]

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