Turkish Lira falls to new record low against dollar over inflation fears

ISTANBUL

The Turkish currency tumbled 1.5 percent to yet another record low against the dollar on May 4 amid nagging worries over rising inflation, while the U.S. currency continued to make broad gains.

Inflation climbed to almost 11 percent in April, data showed on May 3, stoked by the lira’s fall against the dollar, now at more than 11 percent this year.

Emerging markets are also continuing their sell-off with stocks on track for a third straight week of losses and currencies suffering as the lira ends its worst week in nearly a decade by touching a fresh record low.

Standard & Poor’s exacerbated the currency’s losses when it cut Turkey’s sovereign debt rating further into junk territory on May 1.

“We are downgrading Turkey because of what we view as increasing macroeconomic imbalances. In this context, the downgrade reflects our concerns over a deteriorating inflation outlook and the long-term depreciation and volatility of Turkey’s exchange rate, notwithstanding the central bank’s recent decision to hike its late liquidity window rate. The rating action also reflects our concerns over Turkey’s deteriorating external position and rising distress in the externally leveraged private sector. It also reflects our view of weakening in Turkey’s fiscal position as a result of continued public and quasi-public stimulus to the economy,” the rating agency said.

Accelerating prices are Turkey’s most pressing economic problem as the country heads into elections on June 24.

The lira was at 4.2880 against the dollar by 0955 GMT after hitting 4.2901, its lowest on record, according to Reuters data.

Pressure on the lira reflected foreign selling of bonds and bank shares, as well as questions over the timing of the Central Bank’s steps to tame inflation, BNP Paribas/TEB Investment strategist Işık Ökte said.

“I do not think the Central Bank can wait until its June meeting in terms of a rate hike and simplifying [policy] with funding through a single rate after the much higher than expected core inflation data,” Ökte said, as quoted by Reuters on May 4.

Last week, the Bank raised its top interest rate by a more-than-expected 75 basis points but analysts said it would need to do more to fight inflation and support the currency. Its next policy-setting meeting is on June 7.

The Bank on April 30 lifted its end-2018 inflation forecast to 8.4 percent, when it announced its quarterly inflation report. Its inflation target is 5 percent.

The yield on the benchmark 10-year bond rose to 13.7 percent, a rise of 77 basis points in the last two days. The benchmark 2-year bond rose to 15.28 percent from 15 percent on May 3.

The main BIST 100 share index fell 0.9 percent to 101,984.83 points.