The Turkish currency sank to a record low, weighed down by rising U.S. yields and concern that monetary policy remains too loose to contain accelerating inflation.
The lira slid as much as 1.1% to 8.5981 per dollar as Treasury yields rose across the curve, denting appetite for riskier assets and currencies in the developing world.
The nation’s central bank kept its benchmark interest rate unchanged at 19% for a second meeting this month, saying the pace of price gains had peaked. Yet the currency has weakened more than 13% over the past three months, by far the most among emerging markets, a depreciation that threatens to feed through into higher prices.
“Lira has been on a steady grind lower,” said Henrik Gullberg, macro strategist at Coex Partners. That “is a reflection of monetary policy not looking tight enough to contain inflation expectations.”
Turkey’s consumer inflation quickened for a seventh month to 17.14% in April, driven by higher energy costs. That means Turkey’s real policy rate now stands at less than 2%, exposing the lira to any shifts in investor sentiment.
The losses were compounded as local accounts bought dollars ahead of large foreign-currency debt repayments, according to two traders who asked not to be named as they were not authorized to speak publicly. Turkish companies have to roll over $6.9 billion of foreign-currency loans in June, the biggest refinancing hump through March 2022, according to central bank data.
Weakness in the lira also comes amid geopolitical tensions. Turkey pushed its NATO allies into softening the official reaction to the forced landing of the plane by Belarus, Reuters reported on Thursday, citing two unidentified diplomats familiar with the matter. NATO released a two-paragraph statement on Wednesday condemning Belarus’s action.
The lira fell 0.7% to 8.5613 per U.S. dollar as of 11:40 a.m. in Istanbul, while the benchmark Borsa Istanbul 100 Index was little changed after decline as much as 1%. The yield on 10-year government bonds climbed 18 basis points to 18.55%.