(Bloomberg) — Turkey’s lira tumbled toward the 14-per-dollar mark as the central bank’s third intervention this month failed to arrest a selloff sparked by an interest-rate policy seen as too loose by markets.
The monetary authority said in a statement it sold foreign exchange because of “unhealthy” price formations, echoing language used by President Recep Tayyip Erdogan to describe a renewed slide in the currency. The lira rebounded briefly after the move, but went back to trade 0.8% lower at 13.9056 per U.S. dollar as of 2:57 p.m. in Istanbul.
The currency has weakened 38% since late September when the central bank cut borrowing costs, bowing to Erdogan’s unorthodox belief that higher rates fuel inflation and must be avoided. Meanwhile, inflation climbed above 21% in November, reaching a three-year high. The deep negative real yields on the currency are spooking investors.
“FX interventions will not trigger a sustainable reversal in USDTRY with the upside bias firmly underpinned by real interest rates deep in the negative territory,” said Piotr Matys, an analyst at InTouch Capital Markets Ltd.
The central bank has lowered the benchmark rate by 400 basis points this year, taking it to 15%. Policy makers will meet on Dec. 16, where markets expect they will reduce the rate again to 14%. The concern follows Erdogan doubling down on his opposition to higher rates and blaming the market for the turbulence.
While he affirmed that a weaker lira could boost Turkey’s competitiveness, the central-bank interventions suggest authorities do want to stop the currency’s free fall to minimize its impact on inflation and consumer demand.
(Updates second paragraph with lira’s reversion to previous weaker levels)
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