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© Reuters. FILE PHOTO: Lire banknotes at an exchange office in Ankara
Por ece Toksabay y Jonathan Spicer
ISTANBUL, Dec 13 (Reuters) – The Turkish lira plummeted as much as 7% in a few minutes on Monday, hitting a new record close to 15 per dollar, gripped by concern over the risky new economic policy of President Tayyip Erdogan and prospects for a further drop in interest rates on Thursday.
The sudden drop left the currency at half the value it was at the end of last year, fueling inflation in a large emerging market economy that is heavily reliant on imports.
The central bank (CBT) previously held the lira (TRY) below the 14.0 level, intervening in the currency market three times in the last two weeks by selling dollars. On Monday he had not announced any intervention until 0815 GMT.
“The apparent relative stability of the TRY last week was artificial and unsustainable. Now we see accumulation pressure taking its toll, taking the weakness of the lira to the next level,” Commerzbank (DE 🙂 said in a note. “Any other attempt by the CBT to stabilize TRY through interventions is likely doomed to fail.”
The lira fell as low as 14.99 against the US currency in a low liquidity market, compared to Friday’s close at 13.889. By 0815 GMT, the lira had cut losses in a volatile session and was at 14.44.
Turkey’s central bank, under pressure from Erdogan, is expected to cut its official interest rate by 100 basis points to 14% this week, according to a Reuters poll on Friday, even though inflation soared to as high as 21.3% last month.
However, there is skepticism as to whether the bank will carry it out given the volatility.
“I honestly don’t think they can take another 100 basis point cut this week. The lira has been very volatile in recent weeks, and S&P has downgraded its outlook (for Turkey’s debt) to negative. Markets will be very little tolerance for this movement, “said Ipek Ozkardeskaya, an analyst at Swissquote Bank.
(Editing by Daren Butler, Kirsten Donovan, translated by Tomás Cobos)
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