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Turkish lira hits record lows as Turkey-U.S. concerns weigh

August 9, 2018 at 4:51pm
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The Turkish lira tumbled to new record lows against the dollar on Thursday, after a Turkish delegation met U.S. officials to try to resolve the disputes between the two NATO allies.

The lira stood at 5.4050 against the dollar at 1234 GMT, down some 2 percent from the previous day’s close. It hit a record low of 5.45 earlier in the day.

The lira has lost nearly a third of its value this year, fuelled by concerns over President Tayyip Erdogan’s grip on monetary policy and, more recently, a widening rift between Turkey and the United States.

“You have some very odd politics with the President interfering with monetary policy – they are picking fights with Europe, they are picking fights with the Americans,” said Paul McNamara, an investment director at GAM London Limited.

Turkey and the United States are at odds over the continued detention of U.S. evangelical pastor Andrew Brunson over terrorism charges while his trial continues in western Turkey.

A Turkish delegation met U.S. State Department and Treasury officials on Wednesday to address the friction between the NATO allies, though there were no signs of a breakthrough after the hour-long talks.

Ankara and Washington also disagree over their military interventions in the Syrian war, Turkey’s plan to buy missile defence systems from Russia and the U.S. conviction of a Turkish state bank executive on Iran sanctions-busting charges in January.

The Treasury and Finance Ministry said in a statement 2019 GDP growth is seen around 3-4 percent and the current account deficit, one of the primary worries about Turkey’s economy, would fall to 4 percent of the GDP.

It also said minister Berat Albayrak would announce the latest plan for the economy on Friday.

Pressure on the lira briefly eased following the statement and it slightly firmed before weakening again. Investors said they were looking forward to Albayrak’s announcement on Friday and the medium-term programme to be announced in the coming weeks.

Erdogan, who has said interest rates are the “mother and father of all evil”, wants banks to lend cheap credit to fuel growth.

Investors fear the economy is overheating and could be due for a hard landing. They have also expressed doubt over the ability of the central bank to rein in persistent double-digit inflation with the president repeatedly calling for lower rates.

Such worries over the independence of the central bank sparked the sell-off in the lira this year.

“If nothing is done, it would mean that a bigger price will be paid in terms of growth to get out of the inflation-exchange rate-inflation spiral,” said Seyfettin Gursel, director of Bahçeşehir University Economy and Social Research Center.

“The basic reason that the exchange rate has gone off the rails is that the confidence in the economy management has disappeared both domestically and abroad.”