Turkish Lira Drops to Record Lows on Minister’s Remarks

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Turkish Lira Drops to Record Lows on Minister’s RemarksThe Turkish lira fell to a record low as it fell for the third consecutive month, while local bonds plunged as analysts speculated the government may restrict the Central Bank of Turkey’s autonomy after the Economy Minister Nihat Zeybekci pressed for a revision of the bank’s regulations.

The lira fell up to 0.9 percent to trade at 2.5273 per dollar after Zeybecki advocated that the central bank’s freedom shouldn’t compromise “national interest”. The currency was trading lower at 2.5173 per dollar as of 3:30 p.m., Istanbul time. This brought its total decline this month to 3 percent. Societe Generale predicts the currency will decline to 2.65 in the next one month.

“The lira is now poised to tumble much further amid the political turbulences and questions about the independence of the central bank,” Bernd Berg, a London-based director of emerging-markets strategy at Societe Generale SA, told Bloomberg News. “The escalation of political risks is a major concern.”

The central bank Governor Erdem Basci has faced criticism from various quarters, such as from President Recep Erdogan, for his failure to reduce interest rates since policy makers hiked the rate to 10 percent in January 2014 in order to prevent further declines in the lira. However, minuscule cuts, with the most recent being on Feb. 24 that resulted to interest rate being lowered to 7.5 percent, haven’t warmed the hearts of politicians and government officials.

However, Basci has refused to reduce the main rate as the local currency drops past the record lows that forced the central bank to intervene last year. Inflation, which stands at 7.2 percent, is at least two percentage points past his target, despite falling from a peak of 9.7 percent in 2014. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com