UPDATE 2-Turkish lira tumbles again to near 10 to the dollar

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(adds current account, comment)

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ISTANBUL, Nov 11 (Businesshala) – The Turkish lira continued its dive into unconventional territory on Thursday, touching a new low of 9.97 with the dollar touching a new low of 9.97 after a spurt in U.S. inflation as the currency was already troubled by the central bank’s unconventional rate cut. The concern increased.

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The lira was down 1.2% and was near the psychological range of 10 against the US currency. It has lost two-thirds of its value in five years, eating up double-digit inflation along with the income of Turks.

At 0850 GMT, one dollar was worth 9.965 Turkish lira. The Turkish currency – again the worst performer among emerging markets this year – was also at a record intraday low against the euro at 11.41.

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Higher-than-expected US inflation data boosted the dollar as investors weighed earlier potential policy by the Federal Reserve. Rising US rates draw money from emerging economies with high foreign debt, like Turkey.

The lira has lost 25% of its value mainly due to concerns over the credibility of monetary policy as President Tayyip Erdogan insisted on lower interest rates to boost growth despite inflation running close to 20%.

Since September, the central bank has reduced its policy rate by a total of 300 basis points to 16%, arguing that inflationary pressures are temporary. Analysts expect further easing despite the already negative real rate.

TD Securities analyst Cristian Maggio said “Turkey is increasingly less attractive” to foreign investors.

“If rates are cut further, the real yield could go up to negative 500 or 600 basis points. And historically, any level that is so wrong with the rest of the market does not bring good things for Turkey,” he said.

Deutsche Bank said the central bank’s emphasis on core inflation and the current account suggests it would cut rates by 100 basis points each in November and December, despite recent lira depreciation and a pick-up in commodity prices.

“We expect headline inflation to end at 19.5% … and remain above 20% in 1H22,” Deutsche Bank said.

Turkey’s current account recorded a surplus of $1.652 billion in September, its second straight month in Kala, with export growth and some improvement in tourism revenues.

In a change in guidance, the central bank said last month the current account deficit was the country’s main problem, and bridging the shortfall was important to tackle price stability and support the lira.

Reporting by Ezgi Erkoyan and Darren Butler in Istanbul and Karin Strohecker in London; Editing by Dominic Evans and Jonathan Spicer

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