Turkish lira crashes to new low against the dollar
26 May, 2018, 01:03 | Author: Samuel Sharp
During a recent visit to London, he said he planned to have a greater say in monetary policy if he wins the elections, which caused a further plunge of his country's currency amid fears that the independence of the central bank could be affected.
However President Recep Tayyip Erdogan has described himself as an "enemy of interest rates".
The U.S. dollar gained around 26 percent against Turkish lira, nearly 24 percent against Argentine peso, almost 11 percent against Brazil real, more than 7 percent against Russian ruble and around 6 percent against Indian rupee. It had fallen to a record 4.9253 on Wednesday, before closing 2 percent stronger following the central bank's intervention.
The central bank, which had been scheduled to hold its next policy-setting meeting on June 7, said it had increased its top interest rate to 16.5 percent from 13.5 percent, prompting a sharp rally in the lira after it earlier tumbled 5 percent.
But doing so will make borrowing more expensive and likely have a negative effect on economic growth.
Following the statement the lira dropped as low as 4.6608 before bouncing back to 4.63.
"The Turkish lira is an outlier now", said William Jackson of Capital Economics, speaking to the Financial Times. "The volatility in the exchange rate is not just about our country; it's a global problem".
ISTANBUL-Turkey's central bank took emergency action late Wednesday, raising one of its interest rates by 3 percentage points, in a bid to stop the Turkish lira's fall one month from presidential and parliamentary elections.
"The government is committed to maintaining fiscal discipline and accelerating structural reforms [including macroprudential measures] to reduce the current account deficit and help the Central Bank's disinflation efforts", he said.
The Turkish lira's collapse is in part due to the US Federal Reserve hiking interest rates, which has encouraged investors to place their money in the US, rather than other economies.
Because Turkey is particularly dependent on foreign capital, its markets are among those to have suffered most. "Given that this is an economy with high inflation and large foreign exchange debts, it can not tolerate sharp falls in the currency that others might be able to". "The Central Bank will continue to use all available instruments in pursuit of the price stability objective".
"Those who believe that by manipulating the dollar they will lead to results that will harm the nation and their pockets and change the election result, are mistaken", the state-run Anadolu Agency quoted Bozdag as saying.
With the bank and its chairman Murat Cetinkaya silent for the past week, he said the central bank needs also to act to "shore up its own credibility" with markets questioning whether it will "be able to take action".
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