Turkish Lira Down 0.5% Against US Dollar

The Turkish lira lost 0.5% against the US dollar during trading on Friday to approach the levels seen last month.

The lira reached its weakest level since the currency crisis in August 2018 to record 7.0175 lira's against the US currency, down from the low of TL 7.0250.

This time, the greenback broke through its trading at TL7.04. The lira’s decline came on a day of pressure on emerging market currencies, after Turkish Central Bank Governor Murat Uissal announced new expectations for low inflation at a news conference on Thursday.

Inflation expectations at the end of the year were reduced from 8.2% to 7.4%, while the inflation forecast for 2021 did not change at 5.4%. "We understood from his observations that the central bank will continue to cut interest rates," said Inver Ercan, an economist at Istanbul-based Terra Investments.

City economists said the outlook is likely to be more difficult than the revised central bank forecasts, expecting the 2020 figure to reach 13%, as a result of inflation in the services sector in particular.

Meantime, the country has not engaged in talks with the IMF for funding help, despite the strain COVID-19 was putting on Turkey’s public finances.

Delphine Arigi, director of emerging market debt at Merian Global Investors said the country’s recent efforts to combat coronaviruses will add to years of accumulated economic pressures, sharing a widespread concern about the Turkish lira.

Turkey's ability to support the lira has become increasingly restricted as the central bank burns through its foreign exchange reserves.

Moreover ,Friday is a national holiday in Turkey, with local markets and banks closed, lower trading volumes have made the currency more vulnerable to volatility.

Finally, traders said that most of the sales come from local state-owned banks that operate on behalf of the central bank.