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Turkey lira falls to record on political pressure, risk aversion

5 March 2015 15:50 (UTC+04:00)
Turkey lira falls to record on political pressure, risk aversion

By Bloomberg View

The Turkish lira fell for a seventh day to a record against the dollar as political pressure for lower interest rates mounted amid global risk aversion.

The lira extended its longest losing streak since January 2014, falling as much as 0.6 percent to a record 2.5773 per dollar. The lira has dropped 9.2 percent this year, the most among 24 emerging-market currencies tracked by Bloomberg after Brazil’s real. Benchmark two-year bond yields jumped 13 basis points to 8.52 percent.

President Recep Tayyip Erdogan and government officials have called on central bank Governor Erdem Basci to cut borrowing costs since policy makers more than doubled the main rate more than a year ago to stem a slide in the lira. There’s no need to worry about currency weakness and the the foreign exchange market “will find its own balance,” Economy Minister Nihat Zeybekci said on state TV channel TRT Wednesday. The rate- setting committee is scheduled to meet on March 17.

“Expectations are for the central bank to continue cutting rates in coming months on political pressure,” Erkin Isik, a strategist at Turk Ekonomi Bankasi, said in an e-mailed note. “The bank is not taking any action against currency depreciation, which suggests that the lira has room to weaken further, in the absence of revival in global risk sentiment.”

While the central bank has room to tighten liquidity further by cutting the amount of liras it lends at its benchmark rate of 7.5 percent, the “effectiveness of such a move is questionable,” Isik said.

Twenty of the 24 emerging-market currencies tracked by Bloomberg have declined against the dollar this year as investors weigh the probable timing of Federal Reserve interest- rate increases.

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