ISTANBUL: The Turkish lira slid to a record low against the dollar on Thursday, hit by renewed concerns about the central bank's ability to tackle inflation after a report that President Tayyip Erdogan had ramped up his criticism of monetary policy.
The lira has fallen nearly 6 percent against the dollar this year, making it the fourth-worst performer among 26 emerging market currencies, as investors have been unsettled by double-digit inflation and a policy response they see as inadequate.
"The recent period of very strong growth has caused the familiar economic vulnerabilities to build up again," said William Jackson of Capital Economics in London.
"There's a problem of very high inflation and the central bank hasn't met its inflation targets for six or seven years and if the currency comes under pressure, there is a lingering concern that the central bank won't be able to react because of government pressure."
The lira weakened to a record low of 4.0430 to the US dollar. By 0920 GMT it was 4.0300, some 0.8 percent softer on the day.
Against the euro it weakened to 4.9618, still off the record low of 4.9728 hit last month.
The yield on the benchmark 10-year bond rose to 12.98 percent from 12.69 percent on Wednesday. The main BIST 100 share index rose 0.85 percent to 114,941 points.
'BEHIND MY BACK'
According to a report in the top-selling Hurriyet newspaper on Thursday, Erdogan criticised a recent interest rate hike at a closed-door meeting of his ruling AK Party this week.
"Before I went abroad, we had a meeting regarding interest rates. We referred to lowering (them). Then when I was abroad, the central bank raised interest rates," Erdogan was reported as saying.
"We take a decision and they don't implement it. They did it behind my back," Hurriyet cited him as saying.
No one was immediately available for comment at Erdogan's office.
Turkey's central bank last raised rates in December, hiking the highest of the four interest rates it uses to set policy by 50 basis points.
Hurriyet said a day earlier the government has been working on measures to lower interest rates by reducing Treasury's borrowing requirement. It said the new model is expected to be announced by Erdogan in a fortnight.
"There have been (reports on) a package to lower interest rates and President Erdogan's criticism of officials responsible for the economy," said one banker who declined to be named.
"Today the central bank was dragged into this. Because we do not understand where this process is going, these developments remain a source of concern in the market and impact pricing," the banker said.
Erdogan, a self-declared enemy of high interest rates, has repeatedly warned the central bank to lower rates, arguing that high rates cause inflation. The central bank will hold its next rate-setting meeting on April 25.
Comments
Comments are closed for this article.