Reuters – The Turkish lira hit new record lows on Friday as a corruption scandal weighed on markets and expectations for an interest rate hike from the central bank to stem currency losses and ease inflationary pressures diminished.
Ten out of 15 analysts polled by Reuters said the central bank would keep rates unchanged at next Tuesday’s monetary policy meeting, despite market pressure. Five said they expected an increase in the overnight rate, currently at 7.75%.
The central bank released its survey of expectations of business leaders’ and economists on Friday, which showed they see inflation accelerating, but market players worry even this will not trigger policy action from the central bank ahead of elections.
“There is a clear deterioration in inflation expectations,” said Garanti Securities economist Gizem Oztok Altinsac.
“Under normal conditions the central bank should have increased the upper band of the interest rate corridor from 7.75%. But recent comments signalled no such action will take place.”
The central bank’s inflation forecast for end of 2014 is at 5.3%.
The lira traded at 2.2189 against the dollar by 1532 GMT after hitting a new low of 2.2230 on Friday.
The currency has weakened more than 8 percent since mid-December when dawn raids and arrests led to the resignation of three ministers and the removal of hundreds of police officers, shaking the political establishment.
New allegations that are emerging daily in local media and social networks have added to political uncertainty and a feeling of unease in financial markets.
The corruption scandal has added to pressure on Turkish assets from the US Federal Reserve’s plan to cut stimulus, as Turkey is among the most vulnerable countries with its huge current account deficit.
The yield on the 10-year benchmark bond fell to 10.22% in thin trade from 10.27% on Thursday’s close.
The main Istanbul index closed down 1.81% at 65,635.03 points, outperforming the main global emerging market index which fell 0.22%.