Turkey’s currency the lira slumped to a record low against the dollar on Wednesday as political pressure on the central bank and expectations of premature interest-rate cuts fueled a selloff for a sixth consecutive day.
The currency dropped by 0.5% to 2.5494 against the dollar in early morning trading, breaching an all-time low of 2.5394 hit on Tuesday as data showed annual inflation picking up to 7.55% in February from 7.24% in January.
Central bank Governor Erdem Basci has been under steady pressure since January from President Recep Tayyip Erdogan and the government to cut interest rates and boost sagging growth in Turkey’s $820 billion economy.
Policy-makers are expected to continue with their easing cycle at their March 17 meeting, citing an improvement in core inflation that slowed to 7.7% last month from 8.6% in January to slash interest rates for a third consecutive time.
“We do not consider the volatility–particularly, in exchange rates–as independent from the central bank of Turkey’s easing tendency in the monetary policy,” economists at Finansbank AS in Istanbul said Wednesday in a note.
“Thus, we think further interest rate cuts may lead to further depreciation in the Turkish lira, which will eventually limit the extent of disinflation in the core indicators as well as in the headline CPI,” they added.
Source: Market Watch
