Turkish Lira Hits Record Low as Erdoğan Defends Son-in-Law

Turkish lira extended its losses against the dollar after Turkish President Recep Tayyip Erdoğan's speech on Tuesday, trading down 1.4% at 7.05 to the dollar.

The decline in Turkey's foreign exchange reserves helped send the lira to a record low against the dollar in early November.

Ratings agency "Fitch" said on Friday that the central bank's net reserves stood at $15.3 billion at the start of February and was negative when taking into account the currency swaps with state-run banks that took place for most of 2020.

Foreign reserves have fallen deep into negative territory, prompting the central bank to sharply raise interest rates to stabilize the lira and curb double-digit inflation.

In the early 2000s, IMF reforms sought to make central bank decisions, including managing foreign exchange reserves independent of ministers' control.

With Erdoğan assuming the presidency of the country's sovereign wealth fund, which controls the state-run banks, Ziraat, Halkbank, and Vakıfbank, Albayrak and Erdoğan were asked to account for losses.

His policy, along with the decision of former central bank governor Murad Uysal to keep interest rates below the inflation rate, raised concerns about the independence of the central bank from policy.

Erdoğan and his finance minister Lotfi Elvan defended Albayrak due to the country's declining foreign currency reserves last year.

Erdogan and Elvan condemned the opposition CHP for targeting Albayrak, a former Treasury and Finance Minister who unexpectedly resigned in early November. The CHP blames Albayrak for using up tens of billions of dollars of the reserves last year in a failed attempt to defend the lira.

Fitch said Turkey's foreign reserves, exhausted by currency interventions last year, remained weak despite the recent increase in central bank holdings.

Also, political risks to the country also remained high due to the threat of economic sanctions from the United States in response to Turkey's purchase of S-400 air defense missiles from Russia in 2019.

Meantime, Turkish tourism, one of its main sources of foreign currency, fell by 71% in January.