Turkish lira banknotes.
ISTANBUL: Turkey’s central bank faced calls yesterday to raise interest rates to steady the embattled lira despite political pressure from Prime Minister Tayyip Erdogan to keep rates low — a dilemma which could put the bank’s credibility at stake.
The lira has tumbled some 9 percent against the dollar since the beginning of May, leading to $3.55bn sold off in two days this week alone in its defence.
Investor concerns the US Federal Reserve would scale back stimulus measures and anti-government protests across Turkey last month have driven the losses.
An overnight signal that US money-printing may not end as soon as expected has eased pressure on the lira for now but Turkey remains most vulnerable to foreign capital outflows among emerging markets as it combats a huge current account gap.
Last week alone, non-residents’ holdings of Turkish government domestic debt securities fell a net $553.9m, data showed yesterday.
Investor concerns about the bank’s room for manoeuvre have risen since Erdogan, who has overseen a boom in the Turkish economy during his 10 years in power, accused a ‘high interest rate lobby’ of instigating unprecedented protests against his government last month.
Without identifying the grouping any further, he accuses it of manoeuvring to undermine the Turkish economy in order to curb growing Turkish political and economic influence.
Such comments cast doubt on prospects for a rate hike, although a sharp whittling down of net reserves, now estimated by bankers to be below $40bn, could set limits to the forex auctioning policy pursued this week.
Reuters
