Turkish Lira Hits Record Low Against the Dollar

turkey_lira_160114The Turkish lira dropped to a record low of 2.5185 against the dollar on Feb. 27, extending losses triggered earlier this week by harsh criticism of the Central Bank from President Recep Tayyip Erdoğan, and on expectations of a U.S. rate hike resulting from stronger-than-expected U.S. durable goods orders.

Erdoğan said on Feb. 25 that the bank’s monetary policy was “unsuited to the realities of the Turkish economy” after it failed to meet his demands for rate cuts larger than those it made on Feb. 24. He questioned whether the bank was under external influence.

Market attention was focused on whether Erdoğan would keep up the pressure or seek to lower tension when he speaks at a lunch he is hosting for provincial governors at the presidential palace at noon.

“President Erdoğan’s comments will be critical for the market today. We could see strong selling pressure if he continues his criticisms of Başçı today. Even worse, we could start to price in Erdem Başçı not continuing (in his post),” said one senior banker.

The main share index fell 2.14 percent to 84,076.91 points, having fallen 0.94 percent on Feb. 26.

As speculation swirled around Başçı’s future, a Central Bank spokesman yesterday said the governor had had a health check but no serious health problem was found and he will return to his duties today.

Ali Babacan, who is in charge of the economy and has been a staunch defender of Central Bank independence, met Prime Minister Ahmet Davutoğlu for more than two hours following Erdoğan’s comments, which rattled financial markets.

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