Turkey’s lira fell to its lowest level since Dec. 25 on concern that the central bank will fail to act decisively to rein in inflation and after U.S. Treasury yields rose.
The lira fell to as low as 7.58 per dollar overnight. It was trading down 0.3 percent at 7.52 against the U.S. currency as of 10:32 a.m. local time in Istanbul.
Turkey’s central bank has reiterated its commitment to tight monetary policy after the Turkish Statistical Institute agency reported on Wednesday that consumer price inflation accelerated to 15.6 percent in February from 15 percent the previous month.
Economists say that the central bank’s benchmark interest rate of 17 percent may be too low to deal with the building pressure on prices, pointing to the rising cost of food and imported oil. The bank is targeting inflation of 9.4 percent by the end of the year.
Emerging market currencies have fallen in 2021 after U.S. bond yields rose and the Federal Reserve predicted a pick-up in inflation. An increase in global oil prices is also pressuring currencies, particularly in countries such as Turkey, which imports nearly all the crude it consumes.
Turkey’s central bank hiked its benchmark interest rate in November and December but has left borrowing costs unchanged since. The rate previously stood at 10.25 percent.
Central bank governor Naci Ağbal’s hands may be tied by President Recep Tayyip Erdoğan, who has sacked two governors since July 2019. Ağbal arrived in early November, after the lira sank to a record low of 8.58 per dollar.
Erdoğan says that higher interest rates are inflationary and has called for lower borrowing costs to help industry. Central banks around the world traditionally hike rates to control inflation.
Central bank executives are due to meet on March 18 to decide on interest rates.