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Turkish Lira Falls as Central Bank Raises Inflation Estimates


Fri 31 Jul 2020 | 04:17 AM
Taarek Refaat

The Turkish currency fell beyond 7 liras against the dollar on Thursday in a downward trend that indicates further economic instability in Turkey.

The lira fell to 7.0049 per dollar at the end of trading after It fell 0.1% to 6.9875 against the US currency earlier in the trading.

Turkey is seeking to keep interest rates below the inflation rate to help stimulate economic growth and pull the economy out of the recent slowdown caused by the outbreak of COVID-19, which followed a currency crisis in 2018.

Earlier in May, the lira hit a record low of 7,269 against the greenback, prompting the government to conclude a currency swaps deal with its ally Qatar for $ 10 billion.

The Turkish central bank has sold tens of billions of dollars of its foreign reserves this year to help stabilise the lira.

The Turkish Central Bank "Türkiye Merkez Bankası" has sold billions of dollars of its foreign reserves this year to help stabilize the lira, and state-run banks were forced to intervene in the selling as the central bank’s reserves fell into negative territory, after deducting foreign currency obligations.

Murat Uysal, Central Bank Governor said yesterday that the central bank's monetary policy was consistent to contain inflation, yet, adjusted the bank's expectations for inflation at 8.9% by the end of the year from a previous 7.4%. Also, the country's consumer price inflation stands at 12.6% compared to the bank's benchmark interest rate of 8.25%.

Turkish President Gamble on cheap money, currency support

The central bank defended the lira in both June and July at just 6.85 per dollar before starting to weaken again on Monday, setting a previous defense of 7 liras per dollar in April before falling to an all-time low.

The ability of the central bank to raise interest rates is undermined by the political leadership. The Financial Times said: Erdogan's gamble on cheap money and currency support was unsuccessful. "The Turkish president cannot confuse the basic laws of the economy."