The Turkish lira eased against the US dollar on Monday, dragged by investor concerns that the central bank wouldn’t be able to handle the double-digit inflation in the country, following the data that showed a larger-than-expected March account deficit.
This year, the lira has already slipped 12 percent, affected by investor doubts over the central bank's ability to meet market expectations for tighter monetary policy. It was also dragged by pressures from political uncertainty prior to the country’s snap elections on June 24.
Last month, the central bank raised its late liquidity window rate, which is something that it uses to set up policies, by 75 basis points. On June 7, the central bank is set to hold its next meeting to set monetary policies.
“Market expectations of an interest rate hike on June 7, or maybe before that, are strengthening. But politicians’ statements at this time are putting the exchange rate under more pressure,” according to one banker.
“Presidential statements say the necessary steps will be taken in monetary policy and the stress is important,” the banker added.
The lira was at 4.3270 against the dollar. It was weaker than the close on Friday. It reached an early morning session low of 4.3502. Last week, it also hit a record low of 4.3780.
In addition, the lira declined again on Friday last week after Erdogan called for lower interest rates, tagging them as the “mother and father of all evil.”
The current account deficit is among the top concerns for investors, although the market didn’t show much reaction to the deficit widening and reaching $4.812 billion in March. That was from $4.5 billion during the previous month. It also topped the poll forecast of $4.125 billion.
Another major economic concern for the country is the threat of inflation, which was at 10.85 percent year-over-year in April. It hovered far above the bank’s target of 5 percent.
Erdogan spoke again about interest rates at the weekend he departed for a visit to Britain.
“After June 24, the shape and the level of them will develop in a very different way,” he said.
The yield on the benchmark 10-year bond stood at 13.86 percent. It was higher than Friday’s 13.59.
The main BIST 100 share index climbed 0.11 percent to 101,975 points.
Dollar Edges Lower Against Other Currencies
The dollar slipped lower against a basket of other major currencies after it recently rallied to multi-month highs in the wake of lower expectations for an aggressive pace of monetary tightening by the US Federal Reserve.
The US Dollar Index, which measures the dollar’s strength against a basket of six other major rival currencies, was 0.23 percent lower at 92.23.
The dollar was higher against the yen. The USD/JPY traded hands at 109.53, higher 0.12 percent. However, it was weaker against the pound, with GBP/USD inched up 0.24 percent to 1.3576. Elsewhere, the Australian dollar was stronger. The AUD/USD was up 0.16 percent to 0.7553.