Turkey’s lira fell, tracking other emerging market currencies lower, as hopes that the central bank will raise interest rates to stem recent losses started to recede.
The lira dropped 1 percent to 4.2714 per dollar at 2:53 p.m. in Istanbul on Friday. It had reached a record low of 4.37 on Wednesday, prompting President Recep Tayyip Erdoğan to arrange a hasty meeting of top economy officials to discuss possible emergency measures. It closed Thursday at 4.2313 per dollar.
The summit called by Erdoğan and further meetings between economy officials on Thursday, including Central Bank Governor Murat Çetinkaya, have not been followed up by central bank action. Economists had been calling for a minimum rate hike of 200-300 basis points to steady the lira. The central bank last raised rates by 75 basis points to 13.5 percent on April 25.
Erdoğan, who opposes higher interest rates claiming they are inflationary, has set snap presidential and parliamentary elections for June 24, citing economic developments and the war in neighbouring Syria. His government has since announced a set of stimulus measures, raising further concern that the economy is overheating and heading for a hard landing. The International Monetary Fund and ratings agencies are saying the government should take action to slow the economy down.
A statement published after Wednesday’s summit at the presidential palace in Ankara said that the central bank would continue with its tight monetary policy stance and reiterated that the lira is a free-floating currency. Turkish Economy Minister Nihat Zeybekçi said on Friday that he did not accept the lira’s weakness and said he expected the currency to stabilize once regional and global developments turned more positive.
Barring on emergency meeting, the central bank is due to decide on interest rates at a regular session on June 7.