LONDON (FT) - The
Turkish lira fell to an all-time low as investors reacted with confusion to the previous day’s rate cut, which some analysts say has hit the mark, pushed the country into a currency crisis.
The lira recovered in morning trade after a sharp drop, but maintained fresh selling in the afternoon in London. The coin was recently trading down around 2% at 11.32 TL per dollar.
The currency has fallen more than 30 percent this year after investors lost confidence in the government’s ability to manage the economy in the face of inflation that surged nearly 20 percent in October. Turkey under governor Sahap Kavcioglu has cut interest rates from 19% since the beginning of September – under heavy pressure from President Recep Tayyip Erdogan – despite rising flee prices.
“If a coin loses more than a third of its value in the foreign exchange market in less than three months, it is probably justifiable to talk about a crisis,” said Ulrich Leuchtmann, head of FX research at Commerzbank. .
Investors say there is little prospect of a long-term recovery in the lira unless the central bank can somehow free itself from Erdogan’s unorthodox belief that high interest rates drive , instead of taming, inflation.
Viktor Szabo, a portfolio manager at Aberdeen Standard Investments, said: “As an investor, when you see a currency depreciating, you always tend to buy in the opposite direction. “But in this case it’s not worth it. If you have some policies that are sure to change then maybe, but there’s no indication that it will. “
While the ostensibly 15% interest rate may be attractive to foreign investors eager to return, the potential annual returns could be “wiped out in a matter of weeks”, given the lira’s rate of decline. , Szabo said.