https://ahvalnews.com-Turkey’s lira, which endured a currency crisis last year, fell for a ninth consecutive day on Friday after official data showed that the war in Ukraine threatened to increase financial stress on the country’s fragile economy.
The lira declined to as low as 14.995 per dollar in Istanbul. It was trading down 0.8 percent at 14.96 per dollar as of 2:07 p.m. local time.
The Turkish currency has declined by 12 percent this year, adding to losses of 44 percent in 2021, after the conflict in neighbouring Ukraine increased investor concern about the country’s economic performance under President Recep Tayyip Erdoğan.
Erdoğan has ordered the central bank to slash interest rates to 14 percent to steamroll economic growth even as inflation accelerated. Consumer price inflation hit 54.4 percent in February, the highest level in major economies and emerging markets. Erdoğan has ruled out rate hikes to slow the price increases, which some economists say could accelerate towards 70 percent in the coming months.
A surge in energy and commodity prices exacerbated by the Ukraine conflict has added to inflationary pressures in a country that imports almost all the energy it consumes. The jump in energy costs has also widened the trade and current account deficits.
The current account deficit widened to $7.11 billion in January, growing by $5.34 billion from a year earlier, the central bank said on Friday. That was the highest level in four years.
“Rates have to go higher, lira lower or Erdoğan has to “call a friend” to get some $$ to boost reserve cover,” said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London. “Could be a $50 billion-plus current account deficit for the year.”
The war in Ukraine threatens to scupper Erdoğan’s economic programme, which focuses on achieving current account surpluses and keeping interest rates low to stimulate manufacturing output, exports and economic growth.
Annual industrial output slowed to 7.6 percent in January from 14.4 percent in December, the Turkish Statistical Institute said on Friday. It shrunk by 2.4 percent month-on-month.
Galloping price increases and lax monetary policies are also causing a sharp deterioration in the country’s inflation outlook. Annual inflation is expected to slow to 41.1 percent by the end of the year, the average estimate of market participants in a central bank survey published on Friday showed. That compared with a prediction of 35 percent in February.
The same survey showed expectations for the year-end current account deficit worsening to $21.2 billion from $9.41 billion in February.
The lira had hit a record low of 18.37 per dollar in late December, prompting Erdoğan to announce a scheme linking some lira deposits to the dollar on Dec. 20. While the lira initially strengthened sharply from those levels, it has lost almost a third of its value since reaching a high of 10.15 per dollar on Dec. 23.