Turkish Lira hits record low, stokes fears of currency crisis as rate cut stings

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Turkish Lira hits record low, stokes fears of currency crisis as rate cut stings

On Tuesday, Turkish Lira, the long-hailed beleaguered currency of a fiscally besieged nation, had been slumped as much as 3.7 per cent to a new intra-session record low of 10.45 against its American counterpart, prompting analysts to raise an alarming bell that the Turkish economy whose inflation had soared over 20.0 per cent year-to-date, might be on the brink of another currency crisis.

Turkish Lira had plunged as much as 28.0 per cent thus far this year while again taking stance as the worst performing emerging market currency, as investors’ frets had ramped up over the Turk President Tayyip Erdogan’s growing influence on Central Bank policy.

On top of that, as the Turkish Central bank had slashed interest rate by 300 bps (basis percentage point) since September, several analysts had contemplated the move as an immature monetary easing cycle, nonetheless, President Erdogan clung on to his view that a faster easing of monetary policy would more likely to drive growth.

Turkish Lira hits fresh record low against US Dollar

Apart from a dovish stance from Turkish Central Bank, a stronger US Dollar had pressed the Turkish currency further, as global investors had positioned themselves for an earlier-than-anticipated rate-hike bet following a flabbergasting upsurge in US Consumer Price Index (CPI) last month.

Citing statistics, the Turkish currency wrapped up the day 2.8 per cent lower to 10.35 against its American peer, marking off the biggest intra-session plunge in more than a month. Meanwhile, addressing to President Erdogan’s influence over Turkish Central Bank, a senior EM economist at Capital Economics, Jason Tuvey said, “There is a growing risk that the central bank's continued obedience to pressure from President Erdogan for interest rate cuts results in sharp and disorderly falls in the currency over the coming days and weeks”.

Nonetheless, Turk Central Bank is expected to slash its benchmark borrowing cost again to 15.0 per cent this week.