Turkish lira dives to record low sparking central bank intervention
Turkey’s lira slumped to a fresh record low against the dollar on Monday, prompting a central bank intervention, after Standard & Poor’s cut the outlook on the country’s sovereign debt to “negative” from “stable”.
The lira was trading lower ahead of a central bank meeting on interest rates on Thursday, when policymakers are expected to press on with a series of rate cuts despite surging inflation.
The lira slid to as low as 14.61 per dollar, taking losses this year to almost 50 percent. The currency was trading down 3.3 percent at 14.34 per dollar at 12:58 p.m. in Istanbul.
The central bank said on Monday that it intervened in the currency markets to help steady the lira, the fourth intervention in two weeks. Its foreign currency reserves are negative when subtracting liabilities, meaning its room for manouevre is limited.
S&P cited “rising risks to Turkey's externally leveraged economy over the next 12 months from extreme currency volatility and rising inflation” in a statement late on Friday.
The ratings agency said it could cut Turkey’s debt rating from ‘B+’, four notches below investment grade, if government policy "further undermined the exchange rate of the lira and worsened the inflation outlook, heightening the risk of banking system distress."
Turkish President Recep Tayyip Erdoğan has ordered the central bank to lower interest rates for three successive months even as inflation accelerated beyond 20 percent. The bank’s benchmark interest rate now stands at 15 percent compared with 19 percent in September.
Turkey’s consumer price inflation rate rose to 21.3 percent in November from 19.9 percent the previous month. Some analysts are predicting that inflation could accelerate to as high as 30 percent in the coming months. Producer price inflation has surged to 54.6 percent.
Ratings agency Fitch also lowered the outlook on Turkey’s debt to “negative” from “stable” on Dec. 3 citing financial risks created by monetary policy easing.
Deutsche Bank has warned that the Turkish authorities may be forced to reverse course and raise interest rates by 10 percentage points in the first quarter of the year to arrest the lira’s declines and tame surging inflation, BloombergHT television reported on Monday.
Low interest rates in Turkey versus inflation mean the country is now in the middle of a credit boom that may be as big as in 2020, when the government instructed state-run banks to flood the economy with loans to kickstart economic growth during the COVID-19 pandemic.
"The 2020 credit stimulus weighed significantly on FX reserves and weakened the lira. The risk is that this could happen again now," Robin Brooks, chief economist at the Institute of International Finance (IIF), said in comments on Twitter.
(This story was updated with central bank intervention in the fourth paragraph, economist's comment in last.)
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Erdogan ist leading Turkey to total destruction!!!
Turkey’s lira slumped to a fresh record low against the dollar on Monday, prompting a central bank intervention, after Standard & Poor’s cut the outlook on the country’s sovereign debt to “negative” from “stable”.
The lira was trading lower ahead of a central bank meeting on interest rates on Thursday, when policymakers are expected to press on with a series of rate cuts despite surging inflation.
The lira slid to as low as 14.61 per dollar, taking losses this year to almost 50 percent. The currency was trading down 3.3 percent at 14.34 per dollar at 12:58 p.m. in Istanbul.
The central bank said on Monday that it intervened in the currency markets to help steady the lira, the fourth intervention in two weeks. Its foreign currency reserves are negative when subtracting liabilities, meaning its room for manouevre is limited.
S&P cited “rising risks to Turkey's externally leveraged economy over the next 12 months from extreme currency volatility and rising inflation” in a statement late on Friday.
The ratings agency said it could cut Turkey’s debt rating from ‘B+’, four notches below investment grade, if government policy "further undermined the exchange rate of the lira and worsened the inflation outlook, heightening the risk of banking system distress."
Turkish President Recep Tayyip Erdoğan has ordered the central bank to lower interest rates for three successive months even as inflation accelerated beyond 20 percent. The bank’s benchmark interest rate now stands at 15 percent compared with 19 percent in September.
Turkey’s consumer price inflation rate rose to 21.3 percent in November from 19.9 percent the previous month. Some analysts are predicting that inflation could accelerate to as high as 30 percent in the coming months. Producer price inflation has surged to 54.6 percent.
Ratings agency Fitch also lowered the outlook on Turkey’s debt to “negative” from “stable” on Dec. 3 citing financial risks created by monetary policy easing.
Deutsche Bank has warned that the Turkish authorities may be forced to reverse course and raise interest rates by 10 percentage points in the first quarter of the year to arrest the lira’s declines and tame surging inflation, BloombergHT television reported on Monday.
Low interest rates in Turkey versus inflation mean the country is now in the middle of a credit boom that may be as big as in 2020, when the government instructed state-run banks to flood the economy with loans to kickstart economic growth during the COVID-19 pandemic.
"The 2020 credit stimulus weighed significantly on FX reserves and weakened the lira. The risk is that this could happen again now," Robin Brooks, chief economist at the Institute of International Finance (IIF), said in comments on Twitter.
(This story was updated with central bank intervention in the fourth paragraph, economist's comment in last.)
Erdoğan arranges hasty meeting with top bankers as Turkish lira dives | Ahval
Turkey’s lira slumped to a fresh record low against the dollar on Monday, prompting a central bank intervention, after Standard & Poor’s cut the outlook on the country’s sovereign debt to “negative” from “stable”.
Erdogan ist leading Turkey to total destruction!!!
