Turkey’s lira crashed 7% to a new record low of near 15 against the US dollar on Monday as investors and economists expect the central bank to cut benchmark interest rates further despite double-digit inflation. The lira trimmed losses to 13.79 versus the greenback by 1547 GMT after the central bank intervened by selling dollars for the fourth time in two weeks. However, the local currency is still down 31% since early November.
The Central Bank of the Republic of Turkey continued to intervene to soften the blow, but analysts are sceptical such a move would be enough. Under political pressure from President Tayyip Erdogan, CBRT has cut rates by 400 bps since September and is expected to deliver another cut of 100 bps this week despite red-hot inflation and depleted foreign reserves. The most recent data showed CBRT’s net international reserves dropped to $22.47 billion last week.
The lira is now worth just half its value at the start of the year, meaning that Turks’ earnings are sharply eroded. Erdogan met with Finance Minister Nureddin Nebati, CBRT Governor Sahap Kavcioglu, and heads of Turkish banks to discuss the turmoil. However, the results of the meeting remained unavailable, and analysts doubted the crisis could be resolved without an immediate monetary policy reversal.
