Lira Drops to Record Low as Central Bank Seen Unwilling to Act

  • Central bank under pressure not to raise rates to help economy
  • Investors looking to sell any lira rally: Rabobank’s Matys

Piccoli: Turkey's Economy at Crossroads in 2017

The Turkish lira slid to a new record low as investors bet political pressures will constrain the central bank from lifting rates aggressively.

The lira has reached unprecedented levels at the start of 2017 after falling more than 17 percent last year. The currency traded 1.4 percent lower at 3.6225 per dollar by 13.25 p.m. in Istanbul, after a low of 3.6401 per dollar, in the biggest drop among 31 major currencies tracked by Bloomberg. That overturned gains yesterday, as the market looks to sell any upturn, said Piotr Matys, emerging-market currency strategist at Rabobank in London.

“Markets believe that the Turkish central bank is too weak-willed to raise interest rates enough to get on top of the inflation problem,” Nigel Rendell, a senior emerging-market analyst at Medley Global Advisors in London, said by e-mail. “Therefore they lack credibility and investors can think of a dozen other currencies they’d rather be holding than the lira.”

A deterioration in the country’s data, including an economy that shrank in the third quarter, is being compounded by increasing security risks. The central bank is under pressure from politicians including President Recep Tayyip Erdogan to cut rates and support the economy.

“It looks like investors are testing the central bank,” said Rendell. “The Turkish central bank cannot serve two masters -- the politicians and credible inflation targeting.”

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