Turkish lira sags to another all-time low vs dollar

Duvar English - Reuters 

Turkey’s lira slid to a new all-time low on Nov. 11, as the U.S. dollar rallied on rising bets of faster monetary policy tightening by the Federal Reserve.

The worst performer in emerging markets this year, the lira weakened to as much as 9.95 versus the dollar, surpassing the previous record of 9.875, touched a day ago. 

Most emerging market currencies slumped on Nov. 11. The greenback hit a 16-month high after data showing rising inflation in the United States boosted the case for faster Federal Reserve policy tightening.

Higher developed market rates dampen the attractiveness of riskier assets, especially those with high foreign debt such as Turkey. It narrows interest rate differentials which makes EM currencies attractive for carry trade.

With Turkey's current account surplus widening less than expected, the lira fell 1% to new lows of 9.95 against the dollar.

MSCI's index of emerging market currencies slipped 0.2%, looking to post its worst session in six months, with the Chinese yuan on course for its biggest percentage drop in two months. Higher oil prices, which also contributed to crude importer Turkey's currency weakness, kept exporter Russia's rouble buoyed.

The lira has lost nearly 25% this year, including 15% since the beginning of September, when the bank - under pressure from President Recep Tayyip Erdoğan - began setting the stage for policy easing despite inflation running near 20%.

It has since cut its policy rate by a total of 300 basis points to 16%, leaving Turkey with deeply negative real yields - a red flag for investors.

“Turkey is not investable,” said Daniel Grana, portfolio manager for EM equities at London-based Janus Henderson.

“I don’t know about the likelihood of change in the upcoming election, but we would need to see a change in the political thoughts around economic management before we’d be willing to reconsider,” he said of polls set for no later than mid-2023.

“There are fantastic companies in Turkey that are very well run,” Grana added.

“But you have to consider the top down, which in this case is macro-management, and the political process and the choices ... under President Erdoğan have undermined the institutional framework - and gives me no confidence as a foreign investor in Turkey.”

Turkish inflation has risen due to rising commodity prices including oil and gas, which boost import prices in the country that produces little energy. Currency depreciation adds to price pressures, keeping inflation well above a 5% target.