Turkey's lira hits new low after bank rules' rollback

Turkey’s lira hits new low after bank rules’ rollback

Author: Reuters

Lira has weakened 28% this year
Most of declines occurred since last month’s elections
New finmin, cenbank governor move towards orthodox policy

ANKARA, June 26 (Reuters) – The Turkish lira slid as much as 3% to a record low against the dollar on Monday, after the central bank took steps to simplify policy, while an official and bankers said the bank had stopped using its reserves to support the lira.

The lira weakened as far as 26.05 against the U.S. currency, surpassing last week’s all-time low of 25.74. It trimmed its losses to 25.84 by 0945 GMT.

It is down 28% so far this year, largely after the re-election in late May of President Tayyip Erdogan who has since moved to backtrack on his years of unorthodox economic policy including slashing rates despite soaring inflation.

Two big steps were taken in recent days: the central bank under new Governor Hafize Gaye Erkan raised rates by 650 basis points to 15% on Thursday, a substantial tightening even though it fell short of market expectations.

Then on Sunday, the central bank began rolling back parts of the dozens of rules and regulations it had adopted since 2021 that left debt, credit and forex markets heavily state managed – and that were meant to encourage lira holdings.

With the use of central bank reserves to protect the lira’s value before the election, reserves fell to a historical low in early June, with net reserves at minus $5.7 billion. They recovered in the following two weeks.

The simplification steps at the weekend were meant to free up markets and ensure stability, the central bank said at the weekend, while a senior official said the bank had adjusted its foreign exchange policy.