Turkey lira hits new historic lows

Turkey lira hits new historic lows
Turkey's currency took a fresh pounding to hit new historic lows, as emergency measures by the central bank failed to impress markets rattled by terror attacks and political instability.
3 min read
11 January, 2017
Economists have expressed alarm that the pressure could continue [Getty]

Turkey's embattled lira took a new pounding on foreign exchange markets on Wednesday as emergency measures announced by the central bank failed to impress markets rattled by terror attacks and political instability.

The lira has lost almost 10 percent in value against the American dollar since the start of this year alone with President Recep Tayyip Erdogan's plan for a presidential system, currently debated by parliament, unnerving investors.

Turkish lira: how bad can it get?

What is causing the slump?

Deadly attacks, an economic slowdown and political uncertainty have spooked the markets.

What has been done to recover losses?

The central bank tried to break the lira's fall in November by raising interest rates for the first time since 2014. On Tuesday it relaxed foreign exchange rules to inject $1.5 billion into the market, but the move fell flat.

How long could the decline continue? 

Analysts say the massive crackdown in Turkey following last July's failed coup is affecting the business sector, which could prompt capital flight. The political uncertainty is likely to drag on for months.

Can the slide be stopped?

Erdogan has described himself as an "enemy" of interest rates, but analysts say the central bank will have to hike them again, and soon.

The lira lost 1.15 percent against the dollar to trade at 3.84 to the greenback, having earlier reached a new historic low in value of 3.89.

Against the euro, the lira crashed through the 4.0 ceiling for the first time in history to trade at 4.06 to the euro, a loss of 1.19 percent in value on the day.

Economists have expressed alarm that the pressure could continue due to concerns over security and political stability as Erdogan drives for a presidential system under a new constitution.

The central bank on Tuesday sought to halt the slide by relaxing foreign exchange rules to inject 1.5 billion dollars into the market.

But the move failed to halt the bloodletting on the markets with analysts saying more was needed.

"Directionally, we see these measures supportive for the currency," economists at Finansbank said in a note to clients.

But they added: "In terms of magnitude, however, it is a different story. We think the impact on currency is likely be limited."

Despite the turbulence that has seen the lira lose 25 percent against the dollar in the last three months alone, Turkish officials remained sanguine.

"The exchange rate is not more important than the current account, deficit, employment, growth or inflation," Turkey's Economy Minister Nihat Zeybekci was quoted as saying by the Hurriyet daily.

Cemil Ertem, a senior advisor to Erdogan, blamed a conspiracy from abroad to encourage speculation and devalue the lira during the constitution debate.

"There's an operation going on to quickly devalue the Turkish lira. This is not a conspiracy theory. It's a very clear reality," he said.

Hurriyet's economic columnist Ugur Gurses said the central bank was powerless to make any major change given the political background and could only act as a "fire brigade".

"The turbulence experienced in the Turkish financial markets is completely fuelled by the political field," he wrote.