Turkish Lira Weakens To Record Low Versus US Dollar After Rate Decision

ISTANBUL-Turkey’s currency slumped to a fresh all-time low against the dollar in early Monday trading, amid concerns that failure to establish a coalition government will trigger early elections at a time of mounting political uncertainties.

The Turkish lira hit its weakest-ever level against the dollar on Tuesday after the central bank left interest rates unchanged despite a tumble in the lira due to political uncertainty.

The current rates of 7.50 for the one-week repo, and 10.25 percent for the overnight lending rates have not changed since May.

The decision today was the Turkish central bank’s last chance to move before the Federal Reserve’s policy meeting on September 17, when many economists expect it may announce its first rate increase in nine years.

The Turkish currency slipped to a record low of 2.8944 per greenback, down by nearly 1% from Monday’s closing value of 2.8655.

However, the bank’s monetary policy committee has discussed a roadmap for movement towards policy normalization.

While interest rates remain the same, the bank will adopt a tighter policy on money supply, it said in today’s statement. But it did say it would implement a tighter liquidity policy and outlined plans to narrow its interest rate corridor as global monetary policies start to normalise.

“The central bank’s decision adds insult to injury and pulls the rug out further from under the wilting lira”.

Prime Minister Ahmet Davutoğlu is expected on Tuesday to relinquish the mandate to form the next government after coalition talks failed, raising the prospect of another parliamentary election in the autumn after June’s indecisive vote. Nor does fighting in the country’s southeast between government forces and Kurdish PKK militants.

Chiara Albanese contributed to this article.