Markets

Turkish lira breaks important mark

D.he rate of the lira rose above the 8 lira mark for the dollar on Monday. This means that Turkey’s national currency has fallen by 15 percent compared to the world’s leading currency in the past three months.

The escalation of the rift between France and Turkey is not to be seen as beneficial, but also not to be seen as the sole or main reason. Rather, it is the lack of an interest rate hike in the past week that, in conjunction with other factors such as the threat of American sanctions, the conflicts with Greece and many other theaters in the region, and the effects of the Corona crisis on the country, are causing foreign investors to withdraw further leaves.

Turkey has used currency reserves faster than any other emerging country to support the lira exchange rate – largely unsuccessfully. Foreign investors sold $ 13.3 billion in Turkish stocks and bonds this year, financial intelligence service Bloomberg reports. This is the largest sum since at least 2005. The value of the lira has fallen by more than 25 percent this year, making it the second weakest currency internationally after the Brazilian real.

Two weeks ago, the Turkish central bank continued its course of gradually increasing interest rates – although President Recep Tayyip Erdogan is calling for further lower interest rates in order to boost the domestic economy. The European Bank for Reconstruction and Development warns, however, that the banks may have to pay for the expansion of lending with high bad debt losses.

There is still a lack of will to tighten monetary policy, said Viktor Szabo, senior bond manager at Aberdeen Asset Management of the Bloomberg news agency. Years of policy errors culminated in a loss of currency reserves and pressure on the lira exchange rate.

The lira has lost half of its value against the dollar since spring 2008, and 85 percent since the financial crisis. The balance sheet looks similar against the euro, and the currency is also at a new low of 9.52 lira per euro.

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