ISTANBUL: Turkey's lira tumbled to a new low on Thursday, underperforming other emerging markets as speculators tested the central bank's resolve to defend it in the face of US "tapering", rising oil prices and fears over neighbouring Syria.
The lira hit 2.0840 to the dollar in morning trade, its weakest ever, later recovering slightly to 2.0800 by 1203 GMT. It was also near record lows against the dollar/euro basket at 2.4133.
Turkey's gaping current account deficit, high levels of short-term foreign debt and relatively low reserves of foreign currency compared to emerging markets peers make it particularly vulnerable to volatile global capital flows.
The prospect of the US Federal Reserve gradually reining in its huge programme of dollar printing, as well as fears about the impact on Turkey of the deepening conflict in Syria, have heaped pressure on the lira in recent weeks.
Central Bank Governor Erdem Basci's statement last week that he would not defend the currency with interest rate hikes has further unnerved investors and led speculators to test the bank's determination, analysts say.
"Ever since the central bank stated explicitly that rate hikes were off the table, the lira has been more affected by market pressure and speculative attack than even these other fragile (emerging markets) currencies," Morgan Stanley strategists said in a note to clients on Thursday.
A central bank meeting with economists on Wednesday did little to calm nerves.
Bank officials suggested more surprises lay ahead in its unorthodox efforts to stabilise the lira, including using gross reserves to manage forex liquidity. But economists who attended the meeting said the message was less than convincing.
The central bank has sold a total of $8 billion so far this year at forex auctions. Basci has said it has $40 billion in reserves which it could use to shore up the lira and would intervene defensively as needed.
Economy Minister Zafer Caglayan criticised the central bank on Thursday, saying its forex sales had failed to have any material impact and repeating that the bank should not raise its policy rate.
"The central bank injected around $6 billion to the market through interventions, but was only able to move the lira by 1 kurus (0.01 lira)," he told CNBC-e television.
"I don't find the central bank's intervention correct ... there is no point in arm wrestling."
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