ISTANBUL: Turkey's lira headed on Friday for its biggest weekly fall since the aftermath of a failed coup last July, as the central bank's efforts to tighten liquidity and calls from President Tayyip Erdogan for Turks to sell dollars failed to reassure investors.
The lira shed more than one percent against the dollar by 0840 GMT, even after the central bank tried to support the currency for a second day by not opening the one-week repo auction through which it usually funds the market.
"By not opening a one-week repo auction again today the central bank is continuing (veiled) monetary tightening," said Is Investment economist Muammer Komurcuoglu, but he said the market was focused on whether the central bank would hike interest rates at its next meeting on Jan. 24.
The lira has lost as much as 10 percent against the dollar since the start of 2017, making it the worst-performing major currency of the new year, as concern over political and economic stability is compounded by doubts about whether the authorities will take decisive steps to stabilise it.
It was trading at 3.8040 by 0840 GMT after closing at 3.7615 on Thursday. The currency hit a record low of 3.9417 on Wednesday and has lost almost a quarter of its value in the six months since the failed coup attempt on July 15.
Economists say the central bank needs to raise interest rates sharply to prevent further falls. But the bank is reluctant to make such an outright move, with Erdogan and the government pre-occupied by slowing economic growth and eager for lower borrowing costs to spur investment.
Growth in 2016 was around three percent, Economy Minister Nihat Zeybekci told the state-run Anadolu news agency on Friday, a far cry from the high single-digit rates on which Erdogan built his reputation as prime minister from 2003-14.
Erdogan and the government are keen to prevent the economy losing too much momentum as the country prepares for an expected referendum in the spring on constitutional changes that would create a full presidential system and hand him greater powers.
Zeybekci said the central bank has many instruments to counter speculative moves in the lira and said its hands were not tied, although he said that it would be wrong for it to intervene by directly selling forex.
"In the period ahead we will see the lira returning to a normal trend as hope in the speculative moves is lost," he said.
Erdogan accused Turkey's enemies on Thursday of using currency speculation to try to topple the state and urged the central bank to "thwart these games", saying it had all the tools it needed.
He repeated his call to Turks to sell foreign currency, urging a "sense of national mobilisation", and evoked the July coup attempt, when people took to the streets to block tanks.
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