ISTANBUL: Turkey's lira weakened on Thursday after rising to its strongest since Oct. 6 against the dollar, as investors waited for a central bank meeting that's expected to raise its policy rate.
At 0903 GMT, the lira was 0.2% weaker and stood at 7.81 after it touched 7.7935 at Wednesday's close. It has weakened some 24% this year, hit by concerns over depleted foreign-exchange reserves and costly state interventions in the forex market.
The currency gained for four straight days, recovering from near-record lows it reached recently amid geopolitical tensions, including the conflict between Armenia and Azerbaijan and the dispute between Ankara and Athens over ownership of resources in the eastern Mediterranean.
The central bank is expected to raise its policy rate by 175 basis points to 12% on Thursday, tightening policy further to tackle double-digit inflation, a Reuters poll showed. Consumer confidence declined in October to 81.9 points from 82 previous month, showing signs of recovery from the coronavirus fallout in April, when consumer confidence plunged.
The central bank changed the composition of its market funding, and weighted average cost of funding has climbed to 12.52% from a low of 7.34% in mid-July just before the lira started tumbling. "It makes sense to expect another hike today because the central bank should want to eventually implement the effective 12% rate by hiking the benchmark rate itself, not by utilising rate corridor operations as it is doing now," Tatha Ghose from Commerzbank said.
US elections could also weigh in on the lira. Investors and analysts say the beleaguered Turkish lira is especially vulnerable if Joe Biden is elected president.
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