Investors Ask, ‘Does Turkey Even Have a Central Bank Anymore?’By
Lira tanked to new lows against the dollar on Wednesday
Monetary policy makers haven’t attempted to stop market rout
Turkey’s central bank has a reputation among investors as doing too little, too late. Now, with the lira in freefall, some are wondering if it’s going to act at all.
President Recep Tayyip Erdogan’s suggestion last week that he wants to tighten his grip on monetary policy has sent the Turkish currency sinking to record lows against the dollar.
The bank, headed by Governor Murat Cetinkaya, warned investors who were betting against currency that it was ready to act. But he has failed to back that up with concrete measures, and that’s led to an even bigger sell-off. With the lira sinking more from day to day, some investors are warning that a market rout might snowball into a full-blown currency crisis.
“Does Turkey even have a central bank anymore?” Timothy Ash, a strategist at BlueBay Asset Management in London, said in a Twitter post. “The time for the Turkish central bank action is now, or this will set Turkey back 20 years in terms of the economy.”
The lira dropped as much as 5.5 percent to 4.9253 per dollar on Wednesday and was trading 3.6 percent lower at 4.8454 per dollar at 12:39 p.m. in Istanbul. The yield on Turkey’s 10-year lira notes rose to 15.15 percent, a record high, according to data compiled by Bloomberg.
Policy makers have a scheduled meeting on June 7. Charles Robertson, global chief economist at Renaissance Capital in London, is worried that Turkish authorities may be weighing something more drastic than a rate hike.
“I don’t recall Turkey ever letting the market get so out of control as this,” Robertson said in a report. “After Erdogan shot Turkey in the foot, we worry more powerful weaponry will be deployed. There is growing concern that Turkey might machine gun itself in both feet by adopting capital controls.”
Cemil Ertem, Erdogan’s senior adviser on the economy, has repeatedly said the bank is free to use all of its policy instruments, and that radical solutions such as capital controls or a currency peg were out of the question. Erdogan’s meetings with Cetinkaya and other policy makers in recent days have produced no breakthroughs.