A gold dealer counts Turkish lira banknotes at his shop in Istanbul, Turkey, August 6 2020. Picture: REUTERS/MURAD SEZER
At the root of the strains are concerns about the level of Turkey’s reserves and an aggressive monetary easing cycle that has fueled an outflow of foreign capital. With pressure mounting on the currency, authorities have been leaning on state banks to bolster the lira with dollar sales, rather than raising interest rates or curbing the supply of credit.
Officials will likely use other tools before resorting to an interest-rate hike, such as imposing “strict limits” on dollar purchases for Turkish residents, or substantially raising taxes on these transactions, said Piotr Matys, a strategist at Rabobank in London. The lira fell as much as 3.2% on Thursday to 7.2775, and traded at 7.2270 versus the US currency in Istanbul, leading declines in emerging markets. The cost of insuring the nation’s bonds against default climbed to the highest in three months, while the main stock gauge lost 3.2%, making it the worst performer among developing-nation peers.
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