Turkish lira hits record low, down 20 percent against dollar this year

ISTANBUL - 23 May 2018: The Turkish lira weakened sharply against the dollar on Wednesday, bringing its losses to some 20 percent this year, as investors pushed it to fresh record lows on growing concern about President Tayyip Erdogan’s influence on monetary policy.

At 0724 GMT, the lira stood at 4.7642 against the U.S. currency, paring its losses after touching an all-time low of 4.8450 in Asian trade overnight. It has lost as much as 21 percent of its value since the start of the year.

The lira also fell sharply against the Japanese yen, amid talk of Japanese retail investors selling the lira as stop-loss levels were hit.

“The lira fall is now on the agenda of world markets and some are saying there is an increased risk of contagion in other emerging markets from the Turkey risk,” said GCM Securities analyst Enver Erkan.

“The necessity of the Turkish central bank taking a significant step is increasing,” he said.

A self-described “enemy of interest rates”, Erdogan wants borrowing costs lowered to spur credit growth and construction and said last week he would seek greater control over monetary policy after elections set for June 24.

Economy officials told Reuters the government’s economic management team met at the start of this week to discuss potential measures, including possible steps by the central bank. Deputy Prime Minister Mehmet Simsek and Central Bank Governor Murat Cetinkaya attended the meeting.

Ratings agencies sounded alarm about monetary policy. S&P Global senior sovereign analyst Frank Gill told Reuters government finances could deteriorate rapidly if authorities failed to stem pressure on the currency and government borrowing costs.

Investors want to see decisive interest rate increases to rein in double-digit inflation and Erdogan’s comments have reinforced long-standing worries about the central bank’s ability to do that.

Borsa Istanbul Group, the Istanbul stock exchange company, said in a statement on Wednesday it had converted its foreign currency assets into lira, aside from its short-term needs in a step to support the Turkish currency.

The lira weakness was exacerbated by dollar gains against a basket of currencies, with investors awaiting the minutes of the Federal Reserve’s last policy meeting for hints on the pace of monetary tightening.

The yield on the benchmark 10-year bond rose to 15.30 percent at the opening from a last trade of 14.92 percent on Tuesday.

The main BIST 100 share index fell 0.22 percent to 103,105 points on Tuesday.