The Turkish lira plunged the most since a rout late last year, as a steep drawdown in the central bank’s reserves and its unorthodox monetary policy left the currency increasingly exposed amid a standoff with the country’s NATO allies.
Already the worst performer in emerging markets this year, the lira on Tuesday is on track for the world’s biggest decline against the dollar, slipping as much as 1.5% to the weakest level in five months. Little relief is in sight, especially as energy costs spiral higher for Turkey.
“Pressure on the lira is mounting”, said Per Hammarlund, chief emerging markets strategist at SEB AB in Stockholm. He cited “persistently high inflation, signs of slowing growth in Turkey and its main trading partners, and a disastrously misguided monetary policy”.
It’s a culmination of weeks of market turbulence that ended a period of relative stability for the currency, helped by backdoor interventions and the introduction of state-backed accounts that shield savers from lira weakness. The danger is that the currency might become more vulnerable still, with the central bank unanimously expected to hold interest rates again this week despite inflation soaring to the fastest in two decades.
Geopolitics is adding to the negative sentiment....
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