Turkey’s Lira Keeps Calm in Descent to Records: Chart of the Day
The CHART OF THE DAY shows the lira dropped to 2.5149 to the dollar on Feb. 11, 5 percent weaker than the then-record 2.39 reached in January 2014. Three-month implied volatility on the lira, a measure of market fear, was no higher than 14.8 percent this year, compared with 19 percent in 2014.
While the lira has been sliding this year amid questions over the central bank’s independence, the economy has benefited from a narrowing of the current-account deficit and slowing inflation amid the lowest oil prices in six years. The currency’s slump a year ago was largely driven by concern that Turkey would be unable to fund its balance of payments shortfall as the Federal Reserve wound down its bond-buying program and as a corruption scandal rocked the government.
“There is no fundamental reason for the lira to weaken this time; it’s down to this rhetoric between the government and the central bank,” Tatha Ghose, an emerging-market economist at Commerzbank AG in London, said Thursday by e-mail. “Turkey is the biggest beneficiary from low oil prices.”
Central bank credibility has been tested this year as Turkish President Recep Tayyip Erdogan pressured policy makers to lower interest rates, claiming that tighter monetary policy causes inflation.
Quantitative easing from the Fed was a boon to emerging markets as lower U.S. yields pushed investors to search overseas for higher yields.