August 19 Turkey’s lira plumbed a new record low against the U.S. dollar on Wednesday, after a central bank presentation failed to assuage investors concerns about its appetite to defy political pressure and lift rates.
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The list of nine technical adjustments fell short of investor expectations that Turkey’s central bank would be moving toward simplifying its monetary policy framework, one of the world’s most complex.
Like most other emerging market currencies, the lira has been depreciating against the U.S. dollar since May 2014 and since July this year it has fallen continuously. It stood at 2.8820 at 1113 GMT.
The bank said, in a statement by the monetary policy committee, that the inflation outlook was the key factor in the decision. While policy makers kept the repo rate on hold for a sixth month, the weighted-average cost of central bank funding has climbed to 8.74 percent, the highest this year.
The Turkish markets further weakened Tuesday, despite the central bank’s call to action. Analysts said lira volatility, politics and the imminent Federal Reserve rate hike were the main drivers of the decision.
Benchmark two-year bond yields slightly rose to 10.55% from 10.28% while the BIST-100 Stock Index extended losses to 0.3% from 0.2% earlier Tuesday.
The road map, which was published today, sets out various measures for how the CBRT will adjust its liquidity management and foreign exchange policy, including how it will make the interest rate corridor “more symmetric around one-week repo interest rate and the width of the corridor will be narrowed”, starting with the normalization of global monetary policies.
The currency was also hit hard due to rising political uncertainty in Turkey, after the talks between the ruling AK Party to form a coalition government with the Nationalist Movement Party failed on Monday.
Meanwhile, Turkey’s southeast has been rocked by a series of attacks last month, including a suicide bombing that killed at least 32 people on the Syrian border, assassinations of policemen and clashes between Turkish security forces and Kurdish separatists.
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Max Chen contributed to this article.
