London: The relief brought by Turkey’s decision to boost interest rates at Wednesday’s emergency meeting didn’t last long, as the lira resumed its nosedive against the dollar.
The currency declined as much as 3.5 per cent on Thursday, the most in emerging markets, amid concern the unscheduled rate increase will provide only temporary support. It had reversed losses of as much as 5.2 per cent on Wednesday after the central bank raised its late liquidity window rate by 300 basis points to 16.5 per cent.
Much of the currency’s performance during the next few days now depends on the external environment, according to analysts. If the US dollar loses steam and emerging-market currencies rebound from recent lows, the lira may follow suit. If not, it will probably remain among the weakest in developing nations, they say.
“Is lira weakness avoidable? Perhaps not so much, considering Turkey’s high inflation and large external financing needs,” said Emre Akcakmak, a Dubai-based portfolio adviser at East Capital International. “However, a proactive monetary policy is of absolute importance given vulnerabilities.”
The central bank acted after three weeks of turbulence in the currency market, with the lira rallying 2 per cent by the end of Wednesday. President Recep Tayyip Erdogan, who’s seeking re-election in a June 24 vote, didn’t specifically mention the rate increase in a televised speech on Wednesday, but sought to reassure investors by pledging allegiance to global principles on monetary policy.
He’s due to kick off a campaign for re-election on Thursday, as polls suggest he may face a tougher challenge than in the past.
The currency weakened to 4.6938 per dollar as of 9:53am in Istanbul.
