Turkey’s lira rips toward all-time low after regulator moves to stop currency speculation

Turkey’s currency slumped to a near-record low on Wednesday, with the U.S. dollar rising more than 1.5% against the lira to a level not seen in nearly two years after the country’s banking regulator moved to restrict foreign investor access to lira-denominated transactions.

The currency has been under mounting pressure amid rising inflation, growing unemployment and slow growth — and now, the highest number of coronavirus cases in the Middle East region. Turkey’s central bank has drawn down millions of dollars from its foreign currency reserves to buy lira and prop it up against the dollar, and late on Tuesday its banking regulator announced new restrictions on foreigners making lira-denominated transactions in an effort to prevent speculation and short-selling.

The move backfired: the dollar on Wednesday gained, buying 7.1804 lira at 4:45 p.m. London time — a level close to the currency’s worst drop ever, when it hit an intraday bottom of 7.236 to the dollar at the peak of its August 2018 currency crisis.

“Seems just a matter of time before we go ripping through 7.2500 and beyond,” Brad Betchel, global head of FX at Jefferies LLC, said in an analyst note. “Officials put on a confident face when addressing the markets but the market is starting to think the emperor has no clothes.”

Turkey’s economy was already under pressure before the coronavirus hit. Now, after nearly two years of a weakening currency, high debt and fast-disappearing foreign reserves, the country of 82 million is in a particularly bad place to weather a pandemic. Its unemployment rate was already nearly 14% in January, before the economy felt the impact of the coronavirus, and its massive tourism industry is on course to be decimated for the near future.

Turkey has reported 129,491 coronavirus cases and 3,520 deaths as of Wednesday, hitting what appeared to be a peak of more than 4,000 new cases per day through mid-April before the daily cases began to taper, now at a level of just over 2,000 per day.

Turkish President Recep Tayyip Erdogan in mid-April vocally rejected any suggestion of getting help from the International Monetary Fund, a decision one senior emerging markets analyst called “idiotic” at a time when economists say Turkey lacks the economic and fiscal resources needed to withstand such a downturn. Erdogan has repeatedly decried critics and asserted that Turkey’s economy is resilient.

Turkey’s lira rips toward all-time low after regulator moves to stop currency speculation, CNBC, May 6