Turkish lira falls to lowest level yet, with more losses due

Turkish lira falls to lowest level yet, with further losses anticipated
2 min read
19 October, 2021
The Turkish lira hit an all-time low on Monday, sparking concerns in the country about fiscal stability, with further falls expected.
The Turkish lira sank as low as 9.35 against the US dollar [Getty]

The Turkish lira sank to its lowest level against the dollar on Monday, with little prospect for an imminent rise ahead of anticipated interest rate cuts.

The Turkish national currency sank as low as 9.35 against the US dollar before a slight rebound to close the day's trading at 9.34.

Monday's fall follows a previous depreciation that began at the start of this year and continued unabated, with the nation's currency losing 20 percent of its value. 

Many have blamed the economic woes on the policies of President Recep Tayyip Erdogan and his aides, as opposed to the country's central bank. 

"In the end the decisions on… monetary policy [are] no longer taken by the central bank itself but are taken in the President’s Palace," an analyst from Commerzbank told Al Jazeera

President Erdogan has sought to exert control over the central bank, abruptly replacing its top leadership.

He has also called for monetary easing - a policy that lowers interest rates and results in credit becoming more easily available. 

Continuing economic problems in Turkey have severely damaged the credibility of Erdogan's financial strategies and his quest for control. 

Last week, deputy Central Back  governors Semih Tumen and Ugur Namik Kucuk, along with Monetary Policy Committee member Abdullah Yavas, were sacked from their positions with all three viewed as opponents of the president's financial policies.

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Erdogan "has effectively removed all opposition to his unorthodox view that high-interest rates cause high inflation", an analyst from Societe Generale wrote in a note to a client, according to Al Jazeera

The currency was dealt a major blow last month when the country imposed a 100-point rate cut, sending the lira tumbling. A further policy meeting on Thursday is expected to result in yet another rate cut. 

A cut of either 50 or 100 basis points is expected from the meeting. 

"There is no longer any point to ascribing traditional economic arguments in considering the [central bank's] likely course of action," the Societe Generale client's note read. 

Further depreciations to the Turkish lira could spell serious trouble for the country's liquidity, according to financial analysts. 

"An extreme depreciation would hurt confidence and Turkey could face an FX liquidity crunch,” Okan Akin, a credit analyst at Alliance Bernstein in London, told Bloomberg.

"This is a very important risk when Fed tapering is a real possibility. A large devaluation would weaken banks’ capital ratios and spur a selloff in bank bonds," he added.