Turkey: Turkish lira continues to decline, hits new all-time low
May 6, 2015
The Turkish lira (TRY) continued its downward slide in recent weeks, weakening sharply against the U.S. dollar. On 22 April, the TRY reached a new all-time low against the greenback, ending the day at 2.71 TRY per USD. This was 5.4% weaker than the level observed on the same day of the previous month. On an annual basis, the Turkish lira lost 26.7% against the dollar. Since 22 April, the lira has hovered around its record low value, failing to gain ground in recent days.
The TRY’s weakening came on the back of expectations of tightening monetary policy in the United States combined with deteriorating expectations for Turkey’s economy. GDP slowed in 2014 and the country has large external imbalances. In addition, political developments have exacerbated the lira’s volatility, creating fears of an excessive loosening in monetary policy despite rising inflation. President Recep Tayyip Erdogan has been highly critical of the Central Bank’s monetary policy decisions and has been advocating a lower interest rate to boost growth. Adding to the uncertainty, general elections will be held on 7 June. The ruling Justice and Development party (AKP) has stated that its top electoral priority will be to switch from the current parliamentary system of government to a presidential system, which has sparked fears that some of the system’s checks and balances may be removed.