TODAY’S – Troubled Turkish lira continues to tumble, hits 2.60

Troubled Turkish lira continues to tumble, hits 260 The Turkish lira continued to drop to record lows on Thursday, falling to 260 against the ever-strengthening US dollar amid a period of intense pressure applied by the government upon the central bank. The US dollar continued to make gains against the British pound and the euro on Thursday in addition to solidifying its strength against the embattled lira, which stood at just over 259 at 5:13 pm local time on Thursday.

Meanwhile, Turkeyand#39s stock exchange, Borsa Istanbul, fell more than 2 percent on Wednesday and opened with a 134-percent loss on Thursday morning.The currency has lost around 10 percent of its value already in 2015.

The plummeting lira coincides with the ever-growing tension between President Recep Tayyip ErdoIan and Central Bank of Turkey Governor Erdem BaII, who has been subject to fierce and constant criticism from President ErdoIan for more than a yearandldquoIt is absolutely perverse how Turkeyand#39s policy-makers have been driving this attack on the [central bank], in an effort to force rates lower If politicians had stayed quiet, there was a very good chance of a dream scenario panning out for Turkey with lower oil prices and high base effects (deflation), forcing inflationthe current account deficit [CAD] lower and leaving really significant scope for rate cuts — even without verbal intervention from the ErdoIan team,andrdquo said Standard Bankand#39s Timothy Ash in an emailed note on Thursday.In January of 2014, the central bank intervened to rescue the lira, which had fallen to then-record lows of nearly 24 against the dollarThe bank substantially hiked overnight borrowing and lending rates, which helped sta
bilize the falling lira at the time however, the bank and subsequent rate cuts have failed to satisfy ErdoIan, who is well known for his strong aversion to high interest rates.

ErdoIan frequently claims that high interest rates are the cause rather than the result of high inflation, contrary to basic economic theory.Following the central bankand#39s most recent rate cut last week, which brought overnight rates down to 10.

75 percent, ErdoIan expressed his dissatisfaction by implying that BaII had sold out his country. ErdoIan believes that high interest rates are the product of a foreign andldquointerest rate lobbyandrdquo seeking to demean Turkeyand#39s economic success.

Rumors have circulated recently regarding the resignation of BaII in addition to that of Deputy Prime Minister Ali Babacan, whose opinions and style have conflicted with ErdoIanand#39s in recent months. Babacan, who is responsible for the economy, is a respected expert who is among those largely credited with spurring Turkeyand#39s economic growth.

Prime Minister Ahmet DavutoIlu said earlier this week that BaIcIand#39s and Babacanand#39s resignations were out of the question, although speculation still exists as to whether the influential policymakers will be around following the upcoming general elections.andldquoBabacan, BaII and [Finance Minister Mehmet] Iimsek, may all be out after the June parliamentary elections, while there has still not been a formal replacement announced for Treasury Undersecretary [Ibrahim] anakI, which kind of says it all, ie, disputeindecision at the heart of policy at the moment in Turkey, and reflective of Erdoganand#39s drive to move yet more power to the presidency after elections in June,andrdquo said Ash.

SOURCE: Today’s Zaman