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Turkish lira slips to 3 per dollar, weakest since Oct

The lira broke through the symbolic threshold of 3.0 against the dollar for the first time since early October

Published: Updated:

The Turkish lira weakened to a three-month low against the dollar on Wednesday as fears about China’s stalling economy and North Korea’s nuclear test shook investors already concerned about the independence of Turkey’s monetary policy.

The lira broke through the symbolic threshold of 3.0 against the dollar for the first time since early October, and weakened as far as 3.0145 before edging back to 3.0085 at 0928 GMT.

The main BIST 100 share index fell 0.25 percent in early trading. The benchmark 10-year government bond yield rose to 11.27 percent from a spot close of 11.07 percent on Tuesday.

Global pressures on emerging currencies added to domestic concerns about political interference in monetary policy and political uncertainties which pushed the lira 20 percent lower against the U.S. currency last year.

Pressure on the lira resumed on Dec. 23 when Turkey’s central bank shocked markets by failing to hike interest rates despite stubbornly high inflation. That prompted fresh fears that President Tayyip Erdogan’s antipathy to high rates was influencing central bank policy.

The lira was also hit by the Chinese yuan’s grim start to 2016. Asian markets fell on Wednesday after the People’s Bank of China allowed the currency to weaken further, fuelling concerns that the world’s second-biggest economy could be even weaker than thought.

As Iran and Saudi Arabia continued a face-off over Riyadh’s execution of a Shiite cleric, North Korea’s announcement that it carried out its first successful test of a hydrogen bomb further heightened geopolitical tensions.

Turkish stocks have also suffered in recent months, with the BIST 30 the sixth worst performer in a basket of emerging markets in the last year to date, down 4.39 percent.

On Tuesday, the central bank said tax hikes introduced at the beginning of the year on tobacco and alcohol would add a further 0.7 percentage points to inflation.

Monday’s inflation data showed consumer prices rose 8.81 percent year-on-year in December, above forecasts and significantly higher than the central bank’s 5 percent target.