Turkish Lira Stands Among World's Worst Currencies in 2020

The Turkish Lira continued its gradual slide to record lows on Wednesday, reflecting expectations that the central bank will not raise interest rates as tensions with Greece and the threat of new EU sanctions seemed to have eased.

Concerns over Turkey's depleted foreign exchange reserves and sharply negative real interest rates drove the lira down by 22%, making it among the world's worst performers this year.

The lira has dumped half its value in less than three years to settle about 7.7 TRY per dollar. The downturn began when a currency crisis in 2018 led to a severe recession that ended years of economic growth under President Recep Tayyip Erdogan.

The coronavirus pandemic has caused the economy to contract for the second time in several years, leaving the central bank reluctant to remove the monetary stimulus amid the recovery, especially given Erdogan's pressures for cheap money.

In contrast to the selloff in 2018, the lira in recent months has slowly slumped to an all-time low, registering 8.99₺ versus the euro this week. and 7.7₺ against the dollar, its lowest level on record.

The slide in the currency has continued despite a Greek-Turkish agreement to resume talks over competing claims to Mediterranean waters, a row that has raised prospects for tougher EU sanctions over Turkey.

Economists expected the central bank to keep interest rates steady at 8.25% at Thursday's meeting. The one-week repurchase rate has been around since May after nearly a year of steep interest rate cuts.

Yet, others said the bank could raise the secondary rate, its delayed liquidity, from 11.25% to create more room for tightening the credit that raised the average cost of financing to 10.61%.