Turkish lira tests new lows on overheating fears

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Turkey’s lira fell to record lows against the dollar and euro on Tuesday on increasing concern that the government is overheating the economy ahead of elections.

The lira dropped to as low as 4.094 per dollar in Istanbul. It fell 0.3 percent to 4.084 at 2:17 p.m. The currency declined 0.4 percent against the euro to 5.038.

The Turkish currency has slumped against the dollar this year as President Recep Tayyip Erdoğan pushed on with economic stimulus measures designed to spur growth ahead of the presidential and parliamentary elections due by November 2019. Turkey’s alignment with Russia and Iran in Syria is also causing concern among investors that Turkey is ditching its western orientation.

Erdoğan announced a latest $34 billion worth of investment incentives on Monday and repeated a demand for lower interest rates. He claimed some people were jealous of Turkey’s growth performance, dismissing criticism that his brand of economics, which says higher interest rates are inflationary, could lead to a hard landing for the country’s economy.

The central bank’s highest interest rate, for its so-called late liquidity window, stands at 11.75 percent. The rate is well below current market rates for Turkish bonds and bank loans, which are as high as 20 percent. The central bank, run by a former Islamic banker hand-picked by Erdoğan, is under political pressure to keep rates low to boost economic growth.

Tim Ash, a senior emerging markets strategist at Blue Bay Asset Management in London, said on Monday that Erdoğan appeared to be siding with officials in his government who favour more economic growth amid a tug of war that almost led to the resignation of Deputy Prime Minister Mehmet Şimşek, a favourite with foreign investors, last week.

The lira is also declining after Erdoğan hosted Russian President Vladimir Putin and Iranian President Hassan Rouhani in Ankara last week to discuss the political future of Syria. Many observers see the emerging three-way alliance as a sign that Erdoğan is forming a foreign policy at odds with that of the European Union and United States, from which Turkey receives much of its foreign investment.

Turkey’s growing current account deficit, which totals about 5.6 percent of gross domestic product, is also unnerving investors. The state statistics office is due to announce data for February on Wednesday.



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