Turkish lira at record low against dollar

Central bank responds with measures to halt tighten monetary policy but that fails to halt the slide

The Turkish lira hit a record low of 3.9780 against the dollar yesterday, accelerating losses to some 17 per cent since September as concerns widened about Ankara’s strained relations with the US and central bank independence.

The central bank — faced with the unenviable task of trying to balance double-digit inflation with President Tayyip Erdogan’s demands for lower interest rates — responded with emergency measures to tighten policy, although that failed to reverse the slide.

The lira’s plunge has helped fuel inflation by driving up the cost of energy and other imports. Turkey imports almost all of its energy needs.

Worries about US ties centre around the trial of Turkish gold trader Reza Zarrab, who is accused of violating US sanctions on Iran. The Turkish government spokesman on Monday described the case as a “clear plot against Turkey” that lacks any legal basis.

The foreign investors upon whom Turkey relies to finance its big budget and current account deficits also have deep concerns about political pressure on the central bank.

Erdogan, who wants to see to lower interest rates to fuel lending and construction, said last week that a lack of government intervention in policy had left Turkey saddled with high inflation.

“The direction of relations has been clearly worrying,” said William Jackson of Capital Economics in London. “Turkey and the US have historically had close ties, but if you look at the events over the past months ... it suggests that relations are deteriorating and that’s certainly a big concern for investors.”

The currency fell as far as 3.9780 to the dollar, eclipsing a previous record low of 3.9417 set in January. It was at 3.9541 at 1111 GMT, after the central bank’s measures.

Against the euro, the currency of some Turkey’s major trading partners, it touched a record low of 4.6711. The lira’s slide since September has been accompanied by a jump of nearly 200 basis points in short-term government debt yields in the same period. Sensex (IN)