Turkish lira collapses on ‘grim’ political and economic outlook

The Turkish lira fell to a new low against the dollar on Friday, bringing losses this month to 3% amid growing concerns that President Recep Tayyip Erdogan’s policies have driven out foreign investors.

Erdogan has fired three senior central bank officials, including the governor, since March, increasing fears that policymakers may not be able to resist political pressure to reduce borrowing costs at the expense of containing the double-digit inflation in the country.

On Friday, the lira traded as low as 8.6145 per dollar, down more than 13% since the start of the year. It marks the lowest level reached by the currency during the hours when the lira is actively traded.

“Things look grim with macroeconomic and political situations turning negative,” said Enver Erkan, economist at Tera Securities in Istanbul. “The central bank is unable to proactively set the tone, and there has been a divergence with other emerging market currencies over Turkey’s idiosyncratic momentum.”

In an indication of the sour outlook for investors, the California Senate this week voted to require the public employee pension system and the public employee pension system, two of the world’s largest retirement investors, to allow school districts and the cities of opt ort investment vehicles owned or issued by Turkey.

The push for divestment was aimed at punishing the government for refusing to recognize that the murder and deportation of up to 1.5 million Armenians in the final days of the Ottoman Empire was genocide, the California Senator Anthony Portantino, one of the co-sponsors. the invoice’s. Turkey claims Muslims and Christians died during the chaos of World War I and the subsequent collapse of the Ottoman Empire.

S&P Global Ratings is expected to announce its latest rating decision on Turkey later Friday. It has maintained the country’s B + rating, below the investment rating, since August 2018. The three major rating agencies, S&P, Fitch and Moody’s, classify Turkey’s debt as junk.

“It was the culmination of the last balance of payments crisis, [and] it’s hard not to say that things have deteriorated even further since then, ”said Timothy Ash, chief strategist at BlueBay Asset Management, referring to the latest rating action from S&P.

Erdogan, who is used to intervening with the central bank, suddenly sacked the central bank governor in March after sharply raising interest rates to calm inflation, which now exceeds 17%. The president installed Sahap Kavcioglu, a newspaper columnist who shares his unorthodox belief that high interest rates spur inflation, as head of the bank.

This week, Erdogan replaced a second deputy central bank governor after sacking a first shortly after Kavcioglu’s appointment. The central bank also replaced several directors on Thursday, including the heads of banking, research and statistics, Bloomberg reported.

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