Turkish lira slides to record low against dollar

Dollar strength and waning investor confidence are driving the lira lower

Turkish lira slides to record low against dollar

World Bulletin / News Desk 

The Turkish lira dropped to a historic low against the dollar Wednesday.

The Turkish lira fell to a new record low of 2.5492 against the dollar and has held close to that level into the afternoon.

So far this week, the value of the Turkish lira slipped by 1.7 percent against the dollar after dropping almost 2 percent in the previous week.

Analysts attributed the lira's slide partly to the U.S. currency's strength. "Dollar resiliency is partly what is driving the lira lower," said William Jackson, emerging markets analyst with Capital Economics in London.

The dollar index, a measure of the dollar against a basket of major currencies, reached its highest point in the last 12 years Tuesday.

Jackson pointed out that the strong dollar is a challenge for the Turkish economy.

"About two-thirds of private debt in Turkey is denominated in dollars, so the rising value of that currency makes it harder for businesses and individuals to service that debt. At the same time, the low value of the euro, which is the currency in which the largest part of Turkish exports are purchased, means that Turkey is not getting much advantage from the decrease in the value of the lira against the dollar."

Together, these factors are behind a loss of investor confidence in the Turkey, Jackson explained.

Analysts also pointed out that lira weakness affects consumer and business sentiment.

"Consumers get turned off rather quickly from a weaker lira," pointed out Attila Yesilada, an analyst with Global Source Partners in Istanbul.

"And the scale of currency mismatches on corporate balance sheets (at $180 billion as of November) and availability of longer term financing mostly in foreign exchange, squeeze cash flow, undermine sentiment and discourage private investment," Yesilada warned.

The Central Bank of Turkey cut key interest rates at its last monetary policy committee meeting on Feb. 24, but not enough to force a decline of this scale in the lira-dollar exchange rate, analysts said.

There is some doubt that the bank will cut rates again at its March meeting despite calls from Turkish political leaders to do so.

Güncelleme Tarihi: 04 Mart 2015, 15:22