Turkish lira hits new record low on rate freeze, uncertainty

GMT 16:59 2015 Tuesday ,18 August

Arab Today, arab today Turkish lira hits new record low on rate freeze, uncertainty

The Turkish lira
Istanbul - AFP

The embattled Turkish lira on Tuesday tumbled to a new record low against the dollar as investors reacted to ongoing political uncertainty and a freeze in interest rates by the central bank.

The Turkish central bank had earlier kept its rates on hold, scotching hopes held by some economists of a rate hike to support the lira and keep a lid on inflation.

As Prime Minister Ahmet Davutoglu prepared to inform President Recep Tayyip Erdogan of the failure of coalition talks, the currency was also depressed by the looming prospect of new elections and political uncertainty.

The government is also waging an unprecedented two-pronged "anti-terror" operation against jihadists in Syria and Kurdish militants in southeast Turkey and northern Iraq, further rattling investors.

The lira lost 1.31 percent in value to trade at 2.906 to the dollar, the first time it has broken through the psychologically important 2.9 barrier.

The bank said in a statement after its latest monetary policy committee meeting that the one-week repurchase rate would be kept at 7.50 percent. But it also indicated a degree of concern about the lira.

"Exchange rate movements delay the improvement in the core (inflation) indicators," it said in the statement.

The bank added that it will "implement a tighter liquidity policy as long as deemed necessary."

The Turkish currency has now declined 9.10 percent against the dollar over the last month, and 24.3 percent since the start of the year.

"The accompanying statement made it clear that the committee was concerned by the latest fall in the lira," said William Jackson, emerging markets economist at Capital Economics in London.

"We still think it's more likely than not that the cental bank will need to tighten monetary conditions," he said, adding rates could be pushed up by up to 150 basis points.


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