Turkish lira hits nadir as capital flees

ankara — Turkey’s currency has fallen to a record low against the dollar amid concerns about an outflow of investor capital and the country’s ability to manage the situation.

The lira weakened to over 4.80 per dollar on Wednesday, down some 5 per cent since the previous day.

The drop puts pressure on the Turkish Central Bank to sharply increase rates before a scheduled monetary policy meeting on June 7. But it is seen to be reluctant as President Recep Tayyip Erdogan wants rates low.

Higher rates can support a currency and ease inflation, but also hinder economic growth by making borrowing more expensive.

The lira has lost more than 20 per cent of its value against the dollar since the start of the year. The risk is that it will increase the price of imports, making Turkish people effectively poorer. It could also encourage more investors to pull their money out if they expect that the value of their investments to drop as the currency declines.

Turkey’s market jitters in part reflect a global trend in which the currencies of emerging economies have come under pressure. Economists say that is partly because the US Federal Reserve is raising interest rates, encouraging investors to place their money in the US instead of other economies.

Because Turkey is particularly dependent on foreign capital, its markets are one of those to have suffered most.