ISTANBUL/ANKARA:
For some of Turkish President Tayyip Erdogan´s aides, the mere suggestion that
the central bank should raise interest rates as the lira slides through new
record lows amounts to a plot against the state.
"It
is clear the goal is to bottleneck the country´s economy," Erdogan´s
adviser Bulent Gedikli said on Twitter on Tuesday in response to a statement
from the Japan Credit Rating Agency (JCR) indicating investors might welcome a
hike.
"It
is open to debate how right it is to intervene in a floating-rate system, and
if it is to be done, should it be just by hiking rates and destroying
growth?" he said, suggesting there were other, better ways.
Less
than an hour later, the central bank took the sort of step he seemed to have in
mind, cutting banks´ forex reserve requirements in a move it said would inject
$1.5 billion into the system in a bid to ease pressure on the lira.
The
move won a "thumbs-up" emoji from Gedikli. The currency firmed
briefly, but later resumed its slide, in what investors say is a sign that such
steps may be unable to stem the decline without an outright rate hike.
The
lira has fallen 6.8 percent to the dollar since the start of the year, and has
now lost almost a quarter of its value since a failed coup last July. It
weakened beyond 4.0 to the euro for the first time on Tuesday.
The
spillover from neighbouring Syria´s civil war, bombings by Islamic State and
Kurdish militants, the coup attempt, uncertainty over a planned referendum that
would hand Erdogan greater powers, and the first quarterly economic contraction
in seven years have all taken their toll. Turkey´s large external borrowing
requirement also makes the lira one of the currencies most vulnerable to
tightening by the U.S. Federal Reserve. But compounding all of these is the
sense that Erdogan´s aversion to high interest rates means that the central
bank is unable to do the one thing that might stem the rout: hike rates sharply
enough.
The
bank is unlikely to be able to mount a sustained defence of the lira using its
foreign currency reserves; these totalled around $92 billion at the end of last
year, but analysts´ calculations suggest usable levels are around a third of
that.
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