Turkey: Turkish lira falls to record-low amid weak fundamentals and domestic uncertainty
February 5, 2015
The Turkish lira (TRY) has weakened sharply against the U.S. dollar in recent weeks. On 30 January, the TRY reached an all-time low against the greenback, ending the day at 2.45 TRY per USD. This was 5.0% weaker than the level observed on the same day of the previous month. On an annual basis, the Turkish lira lost 7.8% against the dollar. The lira deteriorated further at the beginning of February, trading at 2.46 TRY per USD on 4 February.
The TRY has been under pressure recently due to both domestic and external factors. Investors are concerned about the country’s weak economic fundamentals, such as slowing economic activity and a persistently-large current account deficit, along with rising geopolitical tensions at the southern border. Further, tensions between the government and independent Central Bank have created domestic uncertainties. 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. Following the Central Bank decision to cancel an emergency monetary policy meeting to cut interest rates on 3 February, Erdogan stepped up criticism and sparked fears that the government could exert further pressure on the Central Bank’s independence.
On the external side, a selloff in emerging market currencies driven by speculation that the United States would raise interest rates has also played a role in the weakening of the lira.