ISTANBUL: Turkey's lira weakened for a fifth straight session to a new record low on Friday as hopes faded that stubbornly-high inflation would soon ease, and as pressure grew on the central bank to continue tightening credit.
Analysts also voiced concern about tensions in the Eastern Mediterranean and possible sanctions on Turkey, which is locked in a dispute with Greece over potential energy claims and the extent of their continental shelves.
The lira weakened as far as 7.4540 against the dollar. It has lost 20% of its value so far this year and is among the world's worst performers. It stood at 7.4350 at 0834 GMT.
Thursday's inflation data, showing consumer prices up 11.8% year-on-year in August, was "much more worrying than most think" and shows there is no disinflationary pressure in the second half of the year, Deutsche Bank said in a note.
The central bank has held its key interest rate at 8.25% since May and to support the lira has been using backdoor steps to tighten credit. However the average cost of funding has now steadied at 10.15%.
High inflation undercuts the 265 basis points of backdoor tightening, Deutsche Bank said. "More tightening is needed to stabilize FX ... it is obvious that (the bank) needs an outright hike" later this month, it said.
Concerns over depleted reserves and costly state FX interventions have dogged the lira in recent months, raising pressure on the central bank to tighten policy despite an economy that contracted by nearly 10% in the second quarter.
The bank has given little indication it is preparing to hike rates. Indeed in an investor presentation on Thursday, it repeated that inflation should decline over the medium term.