Turkey's lira plumbed a new record low against the US dollar on Wednesday after the central bank failed to assuage investor concerns about its ability to defy political pressure and lift rates. The lira has lost around 19 percent of its value against the dollar so far this year, making it one of the worst performing emerging market currencies and adding a hefty $3.8 billion to Ankara's energy import bill.
Economists have said the central bank desperately needs to hike rates to defend the lira, but it has been unwilling to do so, drawing criticism it is in thrall to President Tayyip Erdogan, who has equated high rates with treason. The bank's decision on Tuesday to keep rates on hold "undermines the inflation-flighting credibility of one of the least credible EM banks," said Nicholas Spiro, of Spiro Sovereign Strategy. A day after the policy-setting meeting, the bank further frustrated investors with a presentation that suggested it would take its cue for rate hikes from the US Federal Reserve, according to some economists present.
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