A money changer counts Turkish lira bills at a currency exchange office in central Istanbul. The lira yesterday plunged to a record low of 2.6 to the dollar as the US currency rose to an 11-year high on expectations the US Federal Reserve is heading for its first rate increase in almost a decade this year.
Reuters/Istanbul
The Turkish lira dropped to an all-time low yesterday and bank stocks tumbled, as concern grew over President Tayyip Erdogan’s battle with the central bank and the future of the government’s economic team.
The lira reached a record low of 2.6 to the dollar as the US currency rose to an 11-year high on expectations the US Federal Reserve is heading for its first rate increase in almost a decade this year. The lira stood at 2.5945 against the dollar at 1219 GMT.
Efforts by Turkish Prime Minister Ahmet Davutoglu and his economic team to soothe the nerves of investors in New York, who hold more than a fifth of the main Turkish stock index, appeared to have had little immediate effect.
“There has not been any step or statement from a bureaucrat or minister responsible for the economy to calm the situation. Domestically, perceptions have been completely spoiled,” said a chief foreign exchange trader in Istanbul. “It is clear that the results of the meetings in New York are not exactly as desired.”
Bank stocks tumbled 4%, partly on fears that the lira’s depreciation would feed through to inflation and trigger losses on their bond portfolios.
Erdogan has demanded deeper rate cuts to drive growth, despite stubborn inflation. That has raised concern about the futures of central bank governor Erdem Basci and Deputy Prime Minister Ali Babacan. An anchor of investor confidence, Babacan looks increasingly unlikely to return to office after June’s general election.
“An emerging Turkish lira crisis—made at home,” wrote Timothy Ash, head of emerging market research for Standard Bank, in a note to clients. “It is absolutely perverse how Turkey’s policy makers have been driving this attack on the (central bank), in an effort to force rates lower.”
Davutoglu played down political pressure when he was asked about it at a lunch organised by Goldman Sachs in New York on Wednesday. He said other countries also criticised their central banks, according to one veteran investor who attended.
The lira, which has lost some 10% of its value so far this year, was also trading at its lowest since January 2014 against a euro/dollar basket.
Turkey’s banking index fell around 4%, after Citi sold its 9.9% stake in Turkish lender Akbank. Shares in Akbank were down 5%.
The wider Istanbul stock index fell 2.39%, lagging the emerging markets index, which was down 0.17%.
