Turkish Currency Hits All-time Law Amid Market Jitters

Daniel Fowler
August 10, 2020

In what could be contemplated as a vivid demonstration of a dour economic outlook for the emerging market economies amid pandemic induced fiscal drawdowns, the once-cherished Turkish Lira had faltered to an all-time low against its American counterpart on Thursday, as investors appeared to have digested the impacts of a global recession caused by the pandemic outbreak over the narratives of a growing weakness in the country's economy.

Turkish Lira hit all-time lows against the US dollar.

The lira depreciated as much as 2.9% on Thursday to 7.2548, leading declines in emerging market.

However, the rising imports come at a time when the country is losing out on dollars and euros that would normally come in through tourism and a slump in exports due to the ongoing Covid-19 pandemic. Analysts increasingly expect Turkey's central bank, which cut rates to 8.25% by May from 12% at the end of a year ago, will be forced to reverse course.

The skid has revealed the limits of Ankara's costly interventions in the foreign exchange market and analysts say the central bank may be forced to buck political pressure and raise its policy rate from 8.25%. Goldman Sachs expects rates will be raised to 10% by the end of the year, and 14% by the end of 2021.

After the lira's losses, Turkey's central bank said Thursday it would use all available instruments to maintain its price and financial stability objectives.

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In an effort to stem the lira's slide, authorities have made it more hard for domestic lenders to provide lira to foreign banks. The cost of insuring the nation's bonds against default climbed to the highest in three months, while the main stock gauge lost more than 4%, making it the worst performer among developing-nation peers.

Turkey's central bank tightened some credit channels on Friday as the lira plumbed new lows and sources said the authorities had signaled that more such backdoor policy steps would be taken to curb a selloff that began two weeks ago.

Elsewhere in currency markets, the ICE US Dollar Index, which measures the USA currency against a basket of others, fell 0.2% Thursday.

Turkey's banking regulator published a decision that will allow worldwide banks to conduct lira swaps, suggesting that foreign investors will once again be able to borrow the currency from local lenders.

David Gauthier-Villars contributed to this article.

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