Lira Falls as Minister Call for Rate Cuts Adds to Risk Aversion

  • Currency declines to lowest level in more than a week
  • Economy minister says interest rates should fall `radically'

The lira fell to the lowest level in more than a week after Turkey’s Economy Minister became the latest official to call for interest-rate cuts, stoking concern that politicians are interfering in monetary policy.

The currency lost 0.6 percent to 2.8492 per dollar at 6:14 p.m. in Istanbul, also as concern that global growth is faltering prompted weakness in emerging-market assets. Earlier, Economy Minister Mustafa Elitas said the central bank should lower borrowing costs “radically," joining a long line of senior politicians, including President Recep Tayyip Erdogan, to call for easing to stimulate the economy.

Central bank Governor Erdem Basci’s term expires this month and some investors are concerned that his replacement may be more swayed by government pressure to prioritize growth over inflation targeting. Policy makers reduced the upper band of Turkey’s three-pronged interest-rate corridor last month as annual inflation saw its biggest drop since 2012.

“With the central bank governor appointment looming, these kinds of comments from the government might suggest a less market-friendly appointment,” said Emir Baruh, a currency trader at Akbank TAS in Istanbul. "The persistent risk-off mood this week" has been the main driver behind selling, according to Baruh, who said sentiment toward the lira will worsen if it closes beyond 2.85 versus the dollar.

Elitas’ comments coincide with greater pessimism toward emerging markets this week as commodity prices fell and International Monetary Fund chief Christine Lagarde highlighted risks to the global economy.

The Borsa Istanbul 100 Index fell 1.8 percent in a second day of declines. The yield on 10-year government bonds climbed two basis points to 9.91 percent

Before it's here, it's on the Bloomberg Terminal. LEARN MORE