Lira Dives To Fresh Record Lows After US Job Data

The Turkish lira hit fresh record lows on Friday after strong US jobs data raised the specter of the US Federal Reserve (Fed) raising interest rates by mid-year and efforts by Turkish politicians to ease the pressure on the currency failed.

The lira fell to an historic low of 2.6474 against the US dollar on Friday. The lira was already hurt by investors' fears of political interference in monetary policy and by general jitters about emerging markets that face headwinds from a resurgent dollar.

President Recep Tayyip Erdoğan's strident criticism of the central bank's monetary policy has unnerved investors who fear the weakness of the lira will boost inflation further. The lira slipped 0.2 percent and is down 10 percent this year. Elsewhere, the dollar rose to an 11-year high against the world's major currencies and US bond yields jumped on Friday, as US jobs figures reinforced expectations the Fed will push ahead with its first rate hike in almost a decade. Payroll data showed US companies added 295,000 jobs in February, well above forecasts for an increase of 240,000. It was the longest run of 200,000-plus increases since 1994.

The main stock index Borsa İstanbul (BIST) lost 0.44 percent to 80,431 points, while the benchmark 10-year bond yield eased to 8.15 percent from 8.19 percent at Thursday's close.

On Friday, Turkish politicians, including Erdoğan, rushed to ease the tension in markets. These, however, failed to avert the lira's freefall. “One shouldn't say anything to the central bank from now on,” Deputy Prime Minister Bülent Arınç said in Ankara on Friday. Arınç said threatening the central bank and intervening in its policies is “not right,” adding doubts created over the central bank may have stirred the lira's fall.

On Friday, the main opposition Republican People's Party (CHP) deputy chair responsible for the economy, Selin Sayek Böke, referred to the current decline in the lira's value to an ongoing currency devaluation. “The president is interfering in markets with speculative remarks to benefit from the depreciation in the lira. … We saw similar political interventions back in the 1990s,” Böke said in her written statement on Friday.

Earlier on Friday, the lira eased off new record lows after Prime Minister Ahmet Davutoğlu said in New York that he had spoken with the central bank about the currency's weakness and all necessary steps would be taken.

Davutoğlu has been meeting bankers and fund managers in New York, along with Deputy Prime Minister Ali Babacan and Finance Minister Mehmet Şimşek, in an effort to soothe investor concerns over central bank independence and persistent lira weakness.

Davutoğlu told reporters in New York that he had spoken with Turkish Central Bank Governor Erdem Başçı about the lira's weakness and "every kind of measure" on the issue would be taken if necessary. He did not elaborate.

"Turkey has one single agenda. … The unstoppable depreciation of the lira has now become the single biggest problem of every citizen and every private company," İstanbul Analytics economists wrote in a research note.

Erdoğan said on Friday that he would hold talks with Başçı and Babacan after the lira's decline to record lows. Speaking to reporters in the capital Ankara, Erdoğan said an "interest rate lobby," an ill-defined group he has accused of trying to sabotage Turkey's economy through higher rates, was at work in the lira's slide. "There is the known work of the interest rate lobby and the latest developments are completely due to dollar-euro moves," Erdoğan said. "Those who invest excessively in the dollar may end up being stranded."

He said both Başçı and Babacan had requested talks with him and that they would meet after Babacan returns from New York.

(Cihan/Today's Zaman)