Turkish lira slumps to record low, govt says economy under attack
Turkey’s lira tumbled more than two percent to a record low against the dollar yesterday as investors fretted about political and economic stability and a deputy prime minister said the economy was being targeted by “sabotage and attacks”. Once one of the world’s most promising emerging markets, Turkey has been plagued by Islamic State and Kurdish militant bombings and by a failed coup last July. A planned referendum on controversial proposals which would boost President Tayyip Erdogan’s powers has added to the uncertainty.
After years of solid growth, the economy shrank 1.8 percent in the third quarter, bringing pressure from Erdogan, a fierce critic of high interest rates, to lower borrowing costs even as the lira slide is exacerbated by US rate hike expectations.
The lira weakened as far 3.7380 against the dollar yesterday, far outstripping losses in other currencies. It has slumped 22 percent against the US currency since the start of last year.
“At this rate, it will reach our year-end target of 3.85 percent before the month is out,” said Kapital FX deputy research director Enver Erkan. The lira’s falls yesterday were driven partly by a strengthening in the dollar after US payrolls data showed strong underlying wage growth, boosting the case for more Fed rate increases in 2017.
Erdogan has repeatedly cast Turkey as the victim of international attempts to undermine its economy, comments echoed by Deputy Prime Minister Nurretin Canikli yesterday. “We know there are sabotages and attacks aimed at the economy and economic perceptions. There is a campaign to force a hike in interest rates,” he told A Haber television.
“Interest rates are set by the central bank, and it is unacceptable for others to put pressure on this,” he said. Turkey’s central bank kept rates on hold last month but is expected to come under fresh pressure from financial markets to raise them when it meets on Jan. 24.
Adding to the bad news, ratings agency Moody’s said yesterday Turkish bank profits will be hit significantly this year by increased non-performing loans and warned of a “general worsening” in the investment climate.
Bulent Gedikli, an adviser to Erdogan, said on Twitter that Moody’s prediction “does not correspond to the reality of Turkey’s economy”. Canikli said that contrary to Moody’s forecasts, gross non-performing loans would not reach 4 percent this year and asset quality would not worsen. — Reuters