Turkey's lira weakened beyond the psychologically important level of 4.0 to the US dollar on Wednesday, bringing it close to a record low, as concerns about double-digit inflation, and politics, continued to weigh on sentiment. The lira has fallen 5 percent against the dollar so far this year - making it the fourth-worst performer among 26 emerging market currencies. Investors have been distressed by what they see as the central bank's inability to tackle inflation head-on, and President Tayyip Erdogan's growing distance from the West.
"It seems a gradual deterioration story: the geopolitics story has not materially improved," said Phoenix Kalen, a strategist at Societe Generale. "The central bank has been massively behind the curve with respect to addressing the inflationary pressures. So in an environment where there is still the risk of rising core rates, that always places Turkey in the most vulnerable position among emerging markets."
The lira briefly touched 4.0150, not far off the record low of 4.0375 touched last week. It was at 4.0060 at 1335 GMT. Inflation was at 10.26 percent in February after hitting 12.98 at the end of last year, the highest in more than a decade. The central bank has refrained from lifting its benchmark policy rate, using other tools to tighten liquidity. That has strengthened the perception that monetary policy is less than independent and that the bank is under pressure from Erdogan, a self-described "enemy" of interest rates. Investors are looking ahead to March inflation data, due to be released next week.
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