(analyst adds comment, background)
ISTANBUL, Nov 18 (Businesshala) – Turkey’s lira sank as low as 11 near the dollar on Thursday ahead of a central bank meeting, ahead of hopes of further cutting rates even as the currency fell sharply. Inflation remains close to 20%.
The lira was trading at 10.85 against the dollar at 0503 GMT. It dropped nearly 9% from earlier Friday’s close at 10.98.
The central bank’s decision is due at 2:00 pm local time (1100 GMT). Rates are expected to be cut by 100 basis points to 15%, according to a Businesshala poll.
Currency depreciation and concerns of more monetary easing in recent weeks were intensified by President Tayyip Erdogan’s comments on Wednesday that he would continue his fight against interest rates “until the end”.
Erdogan’s insistence on cutting rates and his frequent overhaul of the central bank’s leadership, partly due to policy disagreements, has severely damaged central bank credibility over the years, overtaking the lira.
The central bank, which says the price pressure is temporary, began sending the blame in September and started an easing cycle later that month. It has since reduced its policy rate by 300 basis points to 16%.
Aggressive easing dashed hopes and left Turkey almost alone in a world of policy tightening. But it gave the impetus long sought by Erdogan.
Senior Emerging Markets Jason Tuve said, “Even as a hold (or rate hike) may provide only short-term relief for the currency, it will depend on the president’s response and whether he is looking for another central bank governor.” decides to part ways with him.” Economist in Capital Economics.
“It is clear from a purely macroeconomic point of view what the MPC should be doing at tomorrow’s meeting (ie aggressively raising interest rates to increase capital flows and support the currency), but what it will actually do is, There is huge uncertainty over this,” he said in a statement. Note on Wednesday.
The lira, the worst performer among emerging markets this year, is down more than 32% against the dollar and has fallen by more than 65% over the past four years.
The currency’s depreciation, along with mostly double-digit inflation, eats away at Turk’s earnings and pushes prices higher in Turkey through imports. (Reporting by Ali Kukukgokamen and Can Sezer; Editing by Muralikumar Anantharaman and Richard Pullin)