{"id":123121,"date":"2021-11-18T14:29:56","date_gmt":"2021-11-18T14:29:56","guid":{"rendered":"https:\/\/fin2me.com\/?p=123121"},"modified":"2021-11-18T14:29:56","modified_gmt":"2021-11-18T14:29:56","slug":"turkish-lira-plunges-to-near-11-as-central-bank-ploughs-on-with-cuts","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/turkish-lira-plunges-to-near-11-as-central-bank-ploughs-on-with-cuts\/","title":{"rendered":"Turkish lira plunges to near 11 as central bank ploughs on with cuts"},"content":{"rendered":"

ISTANBUL (Reuters) – Turkey\u2019s lira sank to another all-time low of near 11 to the dollar on Thursday as the central bank pushed forward with an interest rate cut that analysts say ignores a dangerous market meltdown and inflation running near 20%.<\/p>

FILE PHOTO: A money changer holds Turkish lira banknotes at a currency exchange office in Ankara, Turkey October 12, 2021. REUTERS\/Cagla Gurdogan\/File Photo<\/figcaption>

The lira slipped to 10.98 against the dollar in volatile trade before paring some losses to trade at 10.84. The currency has suffered a more than 10% drop since the start of November, making it the worst month for the currency since the August 2018 lira crisis.<\/p>\n

Policymakers – which are under pressure from President Tayyip Erdogan for stimulus – cut the key rate by another 100 basis points to 15%. The bank has bucked expectations and slashed rates now by 400 points since September.<\/p>\n

\u201cThe sharp falls in the lira over the past few days clearly weren\u2019t enough for Turkey\u2019s central bank to stand up to President Erdogan,\u201d said Jason Tuvey at Capital Economics.<\/p>\n

\u201cHow events unfold from here is extremely uncertain.\u201d<\/p>\n

The currency has shed 32% this year over concerns about premature and risky monetary easing. Erdogan stoked the selloff on Wednesday when he pledged to continue his battle against interest rates \u201cto the end\u201d.<\/p>\n

The lira is the worst performer in emerging markets in recent years. The latest meltdown is the sharpest since March when Erdogan sacked a former hawkish central bank chief, Naci Agbal. In the midst of a 2018 crisis, the currency shed more than 25% in a week.<\/p>\n

\u2018ENORMOUS UNCERTAINTY\u2019<\/p>\n

Reverberations of the latest cut have rippled through Turkish assets.<\/p>

Slideshow ( 2 images )<\/span><\/figcaption>

Sovereign dollar bonds fell with the 2030 issue falling 1 cent in the dollar to trade at 131.9 cents, Tradeweb data showed.<\/p>\n

The premium demanded by investors to hold Turkey hard-currency bonds over U.S. Treasuries on the JPMorgan EMBI Global Diversified index stood at 497 bps having blown out by 33 bps over the past 10 days.<\/p>\n

Meanwhile the cost of insuring exposure to the country\u2019s debt through credit default swaps jumped to 438 bps, the highest since Nov. 1 and lira volatility gauges raced higher, some hitting the highest level since early April.<\/p>\n

Local bond yields have climbed sharply since the easing cycle began, with Turkey\u2019s 10-year benchmark bond yield climbing to as much as 19.5%, from Wednesday\u2019s close of 18.95%.<\/p>\n

Erdogan\u2019s insistence on cutting rates and his frequent overhauls of the central bank\u2019s leadership have severely damaged monetary credibility in recent years, battering the lira.<\/p>\n

The central bank says price pressures are temporary. Its rate cuts have left Turkey virtually alone in a world of policy tightening, but they delivered stimulus long sought by Erdogan who has called for a boost to exports and credit.<\/p>\n

The lira has lost more than 65% in the past four years, a decline that eats into the earnings of Turks along with mostly double-digit inflation. Depreciation also pushes prices higher in Turkey via imports.<\/p>\n

Turks have cited economic mismanagement in opinion polls that show Erdogan\u2019s support at multi-year lows. Elections are due no later than mid-2023.<\/p>\n

\u201cI am hopeless for the future. We are in a desperate situation,\u201d said Merve Tektas, 27, a tax auditor in Istanbul. \u201cI intend to change my investment and invest in bitcoin.\u201d<\/p>\n

Pushing for more rate cuts \u201cdefies all logic,\u201d unless one considers that Erdogan is seeking re-election, said Damien Buchet, CIO of the Total Return Group at Finisterre Capital.<\/p>\n

\u201cIn terms of political economic priorities (Erdogan) should understand that inflation is doing him much more damage than the perceived lack of growth and credit,\u201d he said.<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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