Turkish lira surpasses 2.21 record low against dollar
The Turkish lira weakened to a fresh record low above 2.21 against the U.S. dollar today as the negative impact of a corruption scandal surrounding the government was compounded by a strengthening dollar after robust U.S. data Hurriyet Daily News reported .
The lira edged off a new of 2.2125 against the U.S. currency and stood after starting off the day at 2.1947.
The lira's continuous slide intensifies pressure on the Central Bank to hike interest rates with a government corruption scandal and the scaling back of U.S. bond buying dampens the appetite for Turkish assets.
"We see no alternative to the CBRT (Central Bank) outright raising rates in the coming months, despite recent guidance that it will not do so. The first hike will likely come next week," Commerzbank said in a note.
Other economists said they expected the central bank, which has so far avoided rate hikes for fear of denting growth, to leave its main interest rates on hold again at its monetary policy meeting Jan. 21.
The bank has been tightening policy by cancelling its repo auctions, which fund the market at 4.5 percent, lower than the average cost of funding for banks at over 7 percent.
It has also tried to shore up the lira with dollar sales, with a minimum of $3 billion to be auctioned in January.
"We don't have to implement orthodox approaches in monetary policy just because others want us to do so," Finance Minister Mehmet Simsek said on Jan. 15, an apparent defense of the Central Bank's policy mix.
The corruption scandal, which has led to the resignation of three ministers, as well as the Fed's plans to cut the stimulus that has flooded emerging markets with cheap money, are hanging over the Turkish economy.
At a news conference in Ankara, Simsek said Turkey's political turbulence and the scaling back of the U.S. Fed's bond buying pose a threat to a four percent growth target this year, but said any impact would be temporary.
The lira has hit record lows since the corruption scandal erupted in mid-December.
The lira was also affected after a Federal Reserve Bank of New York rate of manufacturing in the state jumped to its highest level in 20 months in January, boosting the dollar.
The data suggested the U.S. economic recovery is not losing steam, supporting the case for a faster cut in U.S. bond buying.
Turkey is particularly vulnerable to reductions in the U.S. stimulus because it depends on cheap capital inflows to finance its gaping current account deficit, running at 7 percent of gross domestic product.