Turkish lira tumbles to fresh lows as stability worries weigh

ISTANBUL: The Turkish lira slumped to new lows on Tuesday, passing 4.0 to the euro for the first time and extending a slide since the start of the year, as a deputy prime minister repeated a warning that the economy was under attack.

Islamic State and Kurdish militant bombings, an economic slowdown and political uncertainty over plans to bolster President Tayyip Erdogan's powers have all unsettled investors. The central bank's reluctance to hike interest rates to stem the lira's falls has only compounded the concerns.

The lira hit a low of 3.7830 against the dollar, from a close of 3.7130 on Monday. It has lost 23 percent against the dollar since the end of 2015. It also hit a low of 4.0054 against the euro, from a close of 3.9231 on Monday.

Deputy Prime Minister Nurettin Canikli, who has said the economy was being targeted by "sabotage and attacks", singled out a report from ratings agency Moody's saying banking profits would be hit by increased non-performing loans.

"This is actually an attack. They will not be able to succeed in any way," he said in a speech in Ankara on Tuesday, saying the Moody's report had no validity and that there was zero risk of the banking sector's asset quality worsening.

Erdogan's demands for lower borrowing costs to boost growth are seen as constraining the central bank's ability to raise rates. Those demands are unlikely to abate after the economy shrank 1.8 percent in the third quarter.

The central bank (CBRT), which left rates on hold last month, is expected to come under fresh pressure from financial markets to raise them when it meets on Jan. 24.

"(The) lack of policy reaction keeps the depreciation pressure alive, as CBRT remains put and does not react either through lira or FX liquidity policy tools," said Turk Ekonomi Bank strategist Erkin Isik.

He said November industrial production data on Monday indicated a limited recovery in the fourth quarter which was "far from encouraging".

Plans for constitutional reform that would create an executive presidential system, handing Erdogan more powers, meanwhile passed another hurdle on Tuesday when parliament voted to debate details of the proposal.

The main Istanbul share index edged up 0.2 percent while the benchmark 10-year bond was steady at 11.42 percent.