Ankara struggles to prop up plunging Turkish Lira

ANKARA/ISTANBUL

Ankara has been struggling to prop up the embattled Turkish Lira, which fell more than 5 percent against the dollar to hit a new record level of 4.9290 on May 23, edging closer to the psychological level of 5 to the dollar.

Economy Minister Nihat Zeybekci has called on responsible institutions to adopt monetary policies to the duty, while describing the recent steep loss in the lira’s value as “speculative and abnormal.”

“Our institutions, which are responsible for maintaining monetary policy should act … All institutions must do what it needs to do. There are tools that can be utilized. They must be used without delay,” he said in a live interview on NTV on May 23.

“We need to show that we cannot allow any speculative loss in the lira’s value,” Zeybekci noted, adding that it was not possible to attach the lira’s plunge to the realities and the dynamics of the Turkish economy.

Government spokesman Bekir Bozdağ said a game was being played with the lira, but it would not affect next month’s presidential and parliamentary elections.

Economy officials told Reuters the government’s economic management team met at the start of this week to discuss potential measures, including possible steps by the central bank.

Deputy Prime Minister Mehmet Şimşek and Central Bank Governor Murat Çetinkaya attended the meeting.

No announcement, however, has come from the Central Bank or others.

The lira was at 4.8702 at on May 23 noon from its close of 4.6746 on May 22. Earlier, it touched a record low of 4.9290.

The decline, exacerbated by stop-loss selling by Japanese retail investors overnight, brings the lira’s losses to more than 20 percent so far this year and puts it on track for its worst monthly performance since the 2008 financial crisis.

The lira’s weakness was also exacerbated by dollar gains against a basket of currencies, with investors awaiting minutes of the Federal Reserve’s last policy meeting for hints on the pace of monetary tightening.

The sell-off has also increased expectations that the Central Bank may be forced to call an extraordinary meeting to raise interest rates before its next scheduled policy-setting meeting on June 7, as it has done in previous years.

Warnings from rating agencies

Suffering from a gaping current account deficit and double-digit inflation, the lira has been in the cross hairs of the emerging market sell-off.

The lira’s fall against the dollar accelerated on May 22 following a statement from the credit rating agency Fitch.

“Comments from the Turkish President [Recep Tayyip Erdoğan] raise the possibility that discretionary policymaking and policy predictability will come under pressure after June’s elections,” Fitch stated, referring to Erdoğan’s remarks in London last week.

Speaking to investors, Erdoğan repeated his unorthodox view that interest rates should be cut, despite high inflation, while vowing to take more responsibility for monetary policy if he wins the June 24 snap presidential election.

“Greater erosion of monetary policy independence would put further pressure on Turkey’s sovereign credit profile, particularly if it contributed to serious external financing stresses and a deterioration in the macroeconomic environment, or undermined wider economic policymaking credibility and the country’s business environment,” Fitch’s statement added.

S&P Global senior sovereign analyst Frank Gill told Reuters on May 22 government finances “could deteriorate rapidly if authorities failed to stem pressure on the currency and government borrowing costs.”