Turkey’s lira sinks to new low on rate-cut concerns

Turkey's lira continued to lose value on Oct. 19, dropping to an annual low of 9.37 against the dollar at market opening. The currency has been hitting record lows for eight consecutive days.

Tuesday October 19 2021 11:42 am

Duvar English - Reuters

Turkey's lira reached an annual record low on Oct. 19, dipping to 9.37 against the dollar at market opening.

The lira had touched a value of 9.35 against the greenback at market closing on Oct. 18, after eight consecutive days of record lows.

The dollar gained more than five percent against the lira in October alone following an unexpected move by the Central Bank on Sep. 23 to cut its policy rate by 100 basis points to 18 percent, delivering stimulus long sought by President Recep Tayyip Erdoğan despite high inflation, and sending the lira to near a record low.

The currency has shed some 19 percent this year, primarily due to the Central Bank's bruised credibility and worries among investors and savers over premature rate cuts in the face of inflation that has risen to near 20 percent.

"The lira has lost its institutional support in recent years ... and last night's changes strongly indicate that the Central Bank is no longer capable of managing Turkey's monetary policy," said Arda Tunca, economist at Eko Faktoring.

The combination of monetary policy and financial regulations have left the "Turkish economy extremely fragile," he added.

Last month, the Central Bank cut its policy rate to 18 percent as Erdoğan - sliding in opinion polls and keen to boost credit and exports - had publicly sought. Most analysts called the easing a mistake at a time of accelerating global inflation.