Bank promises action after Turkish lira tumbles to new low

Stuart Williams
1 / 2

The Turkish economy has started to slow after many strong years under Erdogan's rule

The Turkish economy has started to slow after many strong years under Erdogan's rule (AFP Photo/Adem Altan)

Istanbul (AFP) - Turkey's central bank on Tuesday said it would consider measures to support the embattled lira as the currency tumbled to a new low in value against the dollar, pressured by domestic jitters ahead of June 7 elections.

The lira hit the new record low in value against the dollar of 2.68 to the greenback but rallied somewhat following the statement from the central bank.

The bank took the hugely unusual step of publishing the agenda of its next monetary policy meeting on April 22 which will include measures to support the lira, including a cut in foreign exchange deposit lending rates.

"Other measures to support stability in financial markets will also be considered if deemed necessary," it said.

Following the statement, the lira rallied to 2.67, a loss in value of 0.13 percent on the day.

The lira, which has lost 11 percent of its value against the dollar since the end of January, is being pressured by strong economic data from the United States and expectations the Federal Reserve could hike interest rates at its next meeting.

Against a background of slipping growth and persistent inflation, concerns are also growing about the performance of the Turkish economy in 2015.

Growth was 2.9 percent in 2014, well behind the government's official target of 3.3 percent, and analysts warn it risks slowing further if the government does not reform.

These anxieties have been amplified by President Recep Tayyip Erdogan's conflict with the central bank over interest rates.

The head of state has been calling publicly to slash rates to boost growth and there have been worries about a shake-up in the economic team after the June 7 legislative polls.

William Jackson, economist at Capital Economics in London, said the "unusual decision" by the bank to publish its agenda shows it is "looking for ways to tighten monetary conditions and shore up the lira without incurring the wrath of President Erdogan".


- Measures 'could work' -


Markets have been spooked by fears that Deputy Prime Minister Ali Babacan, seen as the guarantor of sensible economic policy under the ruling Justice and Development Party (AKP), could be jettisoned from the cabinet after the polls.

Prime Minister Ahmet Davutoglu refused to confirm last week that Babacan, who has to quit parliament after serving the maximum three terms allowed by his party, would stay in the cabinet.

"I have enormous respect for Ali Bey (Babacan) but there isn't a separate body to manage the economy, there is only one government."

"We are a team and there is only one government to which Ali Bey will definitely contribute whether he is a minister or not," Davutoglu said.

A standard way for the bank to support the lira would be to hike its main interest rates to make it more attractive to hold funds in the currency, but this would be sure to antagonise Erdogan.

After the fearsome row with Erdogan earlier this year "it's apparent that the (bank) isn't willing to raise official policy rates, particularly with elections on the horizon," Jackson said.

Early indications are that the measures outlined in the bank's agenda for its meeting later this month "could work", he said.