ANKARA: Turkey's lira
weakened on Thursday, as comments from a senior presidential adviser that an
interest rate increase could be possible were not enough to arrest a slide in
confidence that has sent the currency to a series of record lows.
International investors
have battered the lira this year, sending it down some 7 percent already in
2017 - on top of a double-digit decline last year. President Tayyip Erdogan has
characterised the sell-off as an attack on the economy by outside forces.
Investors say they are
worried by the crackdown that followed a failed coup in July and unnerved by
Erdogan´s stance on monetary policy.
He has declared himself
an "enemy" of interest rates, favouring cheap credit to spur the
economy. "The central bank could also use the rate tool, it´s also on the
table. The central bank´s hands are not tied," Erdogan adviser Cemil Ertem
said in an interview on broadcaster NTV.
His comments briefly
bolstered the currency. However, the lira later lost steam and was down more
than 1 percent in late trade at 3.8396.Market participants say the central bank
needs aggressive rate increases to put a floor under the lira and clearly show
the markets it is independent.
Erdogan has said the bank is independent but he is free to
criticise it. In a report this week, analysts at UBS said interest rate hikes
of at least 2 percentage points may be needed to anchor the currency in the
next month or two.
The bank´s benchmark repo rate currently sits at 8 percent,
while the overnight lending rate - the highest of the multiple rates it uses to
set policy - is at 8.5 percent. Separately, Deputy Prime Minister Mehmet Simsek
said the central bank would do "what is necessary" on interest rates.
The central bank has rolled out a series of measures since last week -
culminating in the introduction of forex swap auctions on Wednesday - in an
effort to support the currency. The moves have significantly reduced volatility
in the markets, Ertem said.
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